Commodities. Oil and Gold Daily - November 13, 2017

> Oil retreats on a surge in US rig count; OPEC, EIA reports eyed. After trading above $64/bbl midday on Friday, front-month Brent started to slide and eventually settled at $63.52/bbl, down $0.41/bbl on the day. The losses were triggered by a nine-unit w-o-w increase in the US oil rig count, as reported by Baker Hughes, the largest weekly gain since June, effectively marking an end to a slowdown in rig additions that started in the summer. Although prices rarely exhibit high sensitivity to rig count data, the market had begun taking note of the slowdown two weeks ago after an eight-unit decrease had been reported. Brent gained more than $1.2/bbl on the release of Friday's report to above $62/bbl. In our view, market players have started to pay more attention to US rig numbers, viewed as an early indicator of US oil production, in order to gauge the response of US shale to currently high prices. We consider a renewed surge in capital spending likely, which would drive the rig count and production growth higher than projected by major analytical agencies. A rapid surge in production is a possibility because of a large number of drilled but uncompleted (DUC) wells, which can be brought online rather quickly. At 22:00 Moscow time today, the monthly EIA drilling productivity report will be released; it will almost certainly forecast US shale production growth in December, which would be the 12th consecutive forecast increase and pressure prices after the release. Last month, US shale production was forecast to grow 0.08 mln bpd m-o-m to 6.12 mln bpd in November.
Before the EIA report, investors will be digesting OPEC's monthly report, which is expected to be released between 14:00 and 15:00. It is expected to show a m-o-m decrease in OPEC production in October (as previously estimated by both Reuters and Bloomberg because of the Kurdistan situation) and a decrease in the global oil and refined products surplus over its five-year average level. This would give support to prices around midday. We, however, do not expect a m-o-m decrease in October OPEC production to be a strong bullish factor, since Iraqi port exports, according to government plans, will rise another 0.1mln bpd m-o-m to average 3.45 mln bpd in November. Moreover, Iraq and Kurdistan have agreed to work together to restore production of oil exported by pipeline through Kurdistan this month. The latest data shows that supplies via the Kirkuk-Ceyhan pipeline have already started to increase. An attack on a 0.2 mln bpd oil pipeline in Bahrain over the weekend is not likely to affect market fundamentals, as supplies were quickly restored; it does, however, support oil's high uncertainty premium (around $1.5/bbl for Brent, in our view), as it adds to the tension between Saudi Arabia and Iran. We expect rather choppy trading with Brent trading sideways within a $63.0-64.0/bbl range today.
> Gold prices flat after puzzling selloff on Friday. After trading steadily around $1,285/oz during most of the day on Friday, gold prices fell to as low as $1,274/oz. This morning, they are steady near $1,275/oz. The DXY Index and yen were flat on Friday. The only notable change among the factors that influence prices took place in US Treasury yields, which were consistently rising. Still, the magnitude and swiftness of the selloff in gold (around 4 mln oz) baffled investors. US Treasury yields and the dollar are currently drawing support from political developments in the UK, where PM May's already-pressured government is putting important legislation related to Brexit to parliament for debate. Our FX analysts say that, on the back of the complexity of the process and May's struggling for support, the situation may well force the pound even lower, driving the DXY higher and pressuring gold. Today is expected to be rather quiet with gold likely to remain in the middle of a $1,275-1,280/oz range. Investors will be looking forward to tomorrow, when central bank heads Yellen, Draghi, Carney and Kuroda are due to speak.