Commodities. Oil and Gold Daily - November 14, 2017

> Oil eases amid weaker fundamentals, OPEC data and EIA shale growth projections. Brent hovered above $63.5/bbl early yesterday then started to slide toward $63.2/bbl, only to bounce back to the $63.5/bbl level for most of the rest of the day, drawing support from an upbeat monthly OPEC report. However, it later slid to an intraday low of $62.68/bbl before eventually recovering to settle at $63.16/bbl, $0.36/bbl below the previous settlement price. This morning, Brent is hovering below $63/bbl on a bearish EIA drilling productivity report. Pressure is also being exerted by weaker market fundamentals, as evidenced by the recent weakening in time spreads, with the Brent January-February spread sliding in just the last five trading sessions from $0.35/bbl to as low as $0.04/bbl yesterday, on the verge of a front-month contango (representing an oversupplied market), a situation not seen since early August. Today, market players are eyeing the IEA's monthly report (12:00 Moscow time) and its annual world energy outlook. We do not think any positives in the IEA reports (a possible upward revision to 2018 global demand and the ongoing shrinking global surplus) will be strong enough to stop Brent moving from lower given the weak fundamentals, and we see Brent retreating closer to $62/bbl later today.
The key data from the monthly OPEC report (released at 14:50 Moscow time) that supported prices in the middle of the day was an upward revision to the cartel's 2018 global demand forecast, with y-o-y growth now forecast at 1.51 mln bpd (up from 1.39 mln bpd). This implies that OPEC thinks demand growth next year will be similar to the levels seen this year, which it estimates at 1.52 mln bpd. The OECD crude and refined product inventory surplus (compared to the five-year average) shrank to 154 mln bpd in September, down from 171 mln bpd in August and 322 mln bpd in January. The OPEC report also noted 106% compliance in October among members obliged to cut production, led by the production drop in Iraq.
The latest EIA drilling productivity report indicated that US tight oil production will continue to increase in December. The EIA expects it to rise 0.08 mln bpd m-o-m to 6.17 mln bpd (total US production stands at 9.62 mln bpd, according to the latest EIA inventory report). This will be driven by increased drilling in North Dakota (Bakken formation) and in the Permian Basin in Texas. The EIA also noted another increase in the total number of drilled but uncompleted wells to 7,342 (in October, 1,203 wells were drilled but only 1,065 completed).
> Gold prices flat. Gold traded near $1,276/oz early yesterday then slowly started to climb, falling just short of the $1,280/oz mark later in the day. This morning, gold has slid back to $1,276/oz, stabilizing within the $1,275-1,280/oz range, as investors are eying global triggers that could set a certain price vector. We think speeches today starting at 13:00 Moscow time by central bank heads Yellen, Draghi, Carney and Kuroda could provide just that. After gaining the upper hand yesterday, we expect the dollar index to be on the defensive today, which is already apparent given a strengthening euro, drawing support from a strong 0.8% Q-o-Q rise in 3Q German GDP, taking the annual pace of growth to 2.8%. This implies upside risk to the 0.6% consensus figure for Eurozone GDP, set to be released at 13:00 Moscow time, which is likely to support the euro further, pressuring DXY. The appreciating euro in our view will push gold above $1,280/oz today, with the central bankers' panel seen as a risk event.