Commodities. Oil and Gold Daily - November 15, 2017

> Oil eases on monthly IEA report and API stock data; EIA inventories eyed. Front-month Brent remained just below $63/bbl yesterday morning before sliding almost $1.6/bbl to $61.4/bbl and then recovering to settle at $62.21/bbl, down $0.95/bbl on the day. Post-settlement, prices retreated once again, and this morning the January contract is trading near yesterday's intra-day low of $61.4/bbl. We had anticipated a substantial drop in yesterday's Oil and Gold Daily, as we considered the front-month Brent contract to be strongly overbought, as reflected by the Relative Strength Index (a technical indicator that compares price directions over time), implying a short-term correction. Many have started to view the latest surge to almost $65/bbl as too aggressive given current market fundamentals and as an extension to the OPEC+ deal through end 2018 being agreed on November 30 is not a given. The latest move in front-month time spreads has put the market on the verge of a front-month contango (representing an oversupplied market), a situation not seen since early August.
The monthly IEA report released at midday yesterday served as a catalyst for the selloff. In its monthly report released on Monday, OPEC revised its 2018 global demand forecast up to 1.51 mln bpd from 1.39 mln bpd (and versus 1.52 mln bpd anticipated this year), which boosted prices. Yesterday, the IEA cut its global demand growth forecast for next year by 0.19 mln bpd to 1.28 mln bpd y-o-y (versus 1.52 mln bpd this year). So now the two analytical majors agree on the magnitude of growth for this year but strongly differ on the outlook for 2018. Demand growth is crucial as it is likely to be a deciding factor on whether the market will rebalance next year given OPEC+ efforts and the looming 1H18 seasonal oversupply. It is also important to note that, according to the IEA, the OECD crude and refined product inventory surplus (compared to the five-year average) shrank to 139 mln bbl in September, while the preliminary estimate for October stands at 136 mln bbl.
The post-settlement price drop was driven by bearish API data that indicated a massive 6.5 mln bbl gain in US crude stocks to 462 mln bbl in the week to November 10 (above the EIA's figure of 457 mln bpd for last week), versus the Bloomberg consensus of a 2.4 mln bbl decline. The jump in crude was driven by 0.65 mln bpd w-o-w rise in imports and 0.29 mln bpd drop in refinery runs. We expect the EIA data, scheduled for release at 18:30 Moscow time today, to show a weekly crude stock build of at least 3 mln bpd (in light of the API data), which could force Brent below $61/bbl later in the day, as crude is the one remaining category running a large surplus in the US and momentum is currently bearish.
> Gold surges as DXY and Treasury yields dip; US data eyed. Gold slipped to an intraday low of $1,270/oz early yesterday before starting to recover, surging above $1,280/oz later in the day and approaching $1,285/oz this morning. The move was triggered by further weakening in DXY and Treasury yields. The dollar was pressured by recent euro strengthening. Our FX analysts noted today that the catalyst came early in the day, with German 3Q GDP powering ahead 0.8% Q-o-Q and the dollar's losses subsequently broadening out, boosting other liquid currencies such as the yen and the pound. Today, investors are eyeing US October CPI and retail sales, which are due at 16:30 Moscow time. Both are expected to be weak, reflecting the hurricane effect on the economy. We would not expect weak data today to undermine the prospects for a December Fed rate hike despite the latest comments by the Fed officials. St Louis Fed President James Bullard yesterday said the Fed should keep rates on hold until inflation picks up. We do not expect DXY to slide further today and see gold stabilizing within the $1,280-1.285/oz range.