Commodities. Oil and Gold Daily - June 22, 2017

> Oil prices fall after EIA data. Brent August futures held in a range of $45.5-46.3/bbl mid-day yesterday, but the EIA's weekly US inventory data later caused the oil price to fall almost $2/bbl to as low as $44.2/bbl. Brent eventually rebounded to settle at $44.82/bbl, down $1.2/bbl on the day.
The EIA reported a 2.45 mln bbl drop in crude inventories (to 509 mln bbl) in the week to June 16, versus the 1.2 mln bbl decline forecast by Bloomberg and 2.7 mln bbl decrease reported by the API the day before. The draw was driven by a 0.15 mln bpd w-o-w drop in crude imports (to 7.9 mln bpd), with the biggest decreases coming from Iraq, Saudi Arabia and Nigeria. Offsetting the weekly drawdown and also fueling bearish sentiment were several factors including a decrease in exports (by 0.2 mln bpd to 0.52 mln bpd), drop in domestic refinery inputs (by 0.1 mln bpd to 17.15 mln bpd) and increase in US crude production (by 0.02 mln bpd to 9.35 mln bpd). The crude output figure finally broke out of the 9.30-9.34 mln bpd range it had been stuck in since early May.
The refined product data was mixed. Gasoline demand grew significantly, paring declines from recent weeks, while a further increase in distillate inventories kept the market bulls worried. Gasoline inventories registered a w-o-w decrease of 0.58 mln bbl, contradicting the 0.35 mln bbl gain reported by the API and the Bloomberg consensus estimate of a 0.5 mln bbl build. Gasoline demand grew by 0.55 mln bpd to 9.82 mln bpd, close to historic highs. This somewhat dispelled fears that, given the exceptional strength of refinery runs this year, low end-user demand could lead to significant overstocking. Distillate inventories increased by 1.08 mln bbl, while the market had expected an only 0.5 mln bbl rise.
We find the EIA report constructive given the bullish takeaways, such as the recovery in gasoline demand. However, bearish sentiment has had markets concentrating on bearish figures lately, especially since they have been counting on the long-awaited rebalancing to occur this year. Data defying these expectations has been seeing a bearish reaction. There has not yet been a clear sign that the market rebalancing is materializing after the OPEC and non-OPEC cuts. Since the production cut deal was a rare market intervention, it created expectations of unusually sharp or non-seasonal inventory drawdowns. So far we are not seeing this. Oil and refined product inventories in the US are close to last year's levels. Given the current sentiment, no significant price recovery will come until we see an unusually large inventory drop, and it looks like this will not occur unless deeper production and export cuts are agreed upon by OPEC and its allies.
> Gold holds above recent support. After trading for two days in the $1,240-1,250/oz range, gold broke higher this morning to reach nearly $1,253/oz. It failed to break support at $1,240/oz despite pressure from a strengthening dollar, which means that investors are not yet ready to give up on safe-haven assets. Today's price increase was linked to a flattening US Treasury curve, which signals doubts over US economic growth. This will pressure the dollar in the short term but is not likely to significantly eat into its recent gains. We keep our view that gold will end the week at $1,240-1,250/oz.