Commodities. Oil and Gold Daily - June 28, 2017

> API inventory data could spell big trouble for oil prices today. Brent August futures generated solid upward momentum yesterday, gaining almost $1.2/bbl to $47/bbl. This move came on the back of substantial dollar weakening and quarter-end short-covering. The price eased later in the day and settled at $46.65/bbl, up $0.82/bbl on the day. Post-settlement, it retreated $0.5/bbl to $46.1/bbl straight after the bearish API US inventory data release and is trading near $46.4/bbl this morning.
The API data indicated a 0.85 mln bbl increase in US crude stockpiles in the week to June 23, to 509.5 mln bbl. The increase went firmly against the Bloomberg median estimate of a 2.2 mln bbl reduction and was driven by a rise in imports and a decrease in refinery runs. Imports were up by 0.39 mln bpd while refinery runs were down by 0.23 mln bpd. Last week, the EIA estimated that US crude inventories had fallen to 509.1 mln bbl in the week to June 16 (almost identical to the latest API figure). Refined product inventories also provided bearish momentum. Gasoline stocks once again expanded, this time by 1.34 mln bbl, contradicting the Bloomberg median estimate of no change. Distillate inventories were up by 0.68 mln bbl, close to the market expectation of a 0.9 mln bbl rise. US gasoline demand therefore continues to lag refinery runs, and refined product inventories have now become a worry to such an extent that refiners are now being forced to reduce runs to avoid a glut.
The EIA numbers covering the same period as the API data are due today at 17:30 Moscow time, and if they come in line with the latest API data, another sharp price drop will definitely be on the cards. Every price drop this month that has come straight after the EIA data has been around $1.6/bbl. We think the Brent August contract could close at $45/bbl today unless the EIA provides a significantly bullish surprise.
> Gold exhibiting limited sensitivity to dollar weakening. Gold rose $11/oz early yesterday to reach $1,252/oz, paring some of the sharp losses inflicted on Monday. Later on, however, trading became choppy, and this morning the price is stuck in the $1,246-1,253/oz range, while the dollar continues to lose strength. Usually, gold exhibits a strong inverse correlation with DXY, but right now it is proving less sensitive to the dollar weakness and less willing to tick significantly higher. We think this morning's $5/oz gain could have been stronger given DXY's two-day slump from 97.4 to 96.18. We attribute this to the positioning of hedge funds, which continue to liquidate long positions, emphasizing their more bearish approach to the yellow metal.
The weak dollar is being fueled by gains in the euro, as ECB President Draghi provided bullish momentum yesterday by saying the European central bank will reduce stimulus later this year. Another blow for the dollar came from a delay to the healthcare revamp bill vote by the US Senate, as this will leave less time for the crucial tax reforms that Donald Trump promised during his election campaign. A widely anticipated speech by Fed Chair Yellen failed to overturn the bearish momentum in the dollar, despite her upbeat tone (she said it would be appropriate to raise rates gradually. Today, investors will look out for US pending home sales data set for release at 17:00 Moscow time. We expect a stable market today, with both gold and the dollar trading largely flat.