Commodities. Oil and Gold Daily - November 16, 2017

> Oil prices stable as EIA shows crude stock build. The front-month Brent contract started out the day yesterday trading at around $61.50/bbl ahead of the EIA report. The release initially sparked a short selloff that took prices down around $0.25/bbl, but then they began a steady advance, peaking at an intraday high of $62.08/bbl. They failed to hold on above $62/bbl later in the day and eventually settled at $61.87/bbl, down $0.34/bbl on the day. We had expected Brent to dip slightly below $61/bbl on the latest EIA report (for the week to November 10) on an expected 3 mln bbl w-o-w build in crude stocks, a day after the API had reported a massive 6.5 mln bbl increase to 462 mln bbl for the same period. Despite the EIA's reporting a smaller 1.85 mln bbl increase to 459 mln bbl, we still expect Brent to consolidate at the lower end of the $61-62/bbl range this week.
The EIA data was taken rather positively by the market after the bearishness of the earlier API estimates. The crude stock build was driven by a 0.5 mln bpd gain in imports and yet another increase in US oil production - this time by 0.025 mln bpd to almost 9.65 mln bpd. Stocks are also rising because the US Strategic Petroleum Reserve is selling barrels onto the open market. Weekly gains in refinery inputs (by 0.3 mln bpd to 16.6 mln bpd) and exports (by 0.26 mln bpd to 1.13 mln bpd) were insufficient to drive inventories lower. US commercial crude stocks remain a sizable 60 mln bbl above their five-year average level. Changes in this figure will determine prices for the rest of November, in our view, as crude, unlike gasoline and distillates, is still running a large surplus in the US.
At first glance, the refined product data seems neutral, with gasoline stocks up 0.9 mln bbl w-o-w and distillates down 0.8 mln bbl, both remaining very close to their respective five-year averages. We, however, see a potential bearish development in the report: gasoline demand dropped 0.3 mln bbl w-o-w and distillate demand 0.45 mln bbl. Given the recent surge in refinery inputs, which are now a massive 0.7 mln bpd above the level seen at this time last year, refined product demand must be as robust to avoid inventory builds in the weeks ahead. The problem is that, according to the EIA report, demand is almost exactly where it was a year ago, implying future stockpiling, which would be a strong factor pressuring prices. Another reason for us to be mildly bearish for the rest of the week is the fact that, according to the report, total US inventories (all refined products and crude) have increased by almost 2.8 mln bbl w-o-w, the biggest gain in two months.
> Gold eases from yesterday's highs on decent US data. After rising to an intraday high of $1,289/oz yesterday in response to a euro-driven decline in the DXY dollar index, gold started to slide, eventually settling in the middle of its $1,275-1,280/oz range. Gold's retreat was induced by US CPI and retail sales data that either fell in line with expectations or exceeded them, which caused the dollar to recover slightly. US core CPI growth edged up to 1.8% y-o-y in October (the first uptick in the y-o-y gauge this year), moving closer to the Fed's 2% target. Retail sales also advanced in October, while September's hurricane-related surge was revised higher. There was nothing in yesterday's data that reduced the likelihood that the Fed will raise rates 25 bps on December 13, though Fed policymaker Charles Evans noted in a speech yesterday that he would keep his mind open going into the meeting. He also expressed that he was "optimistic" about the state of the economy and believed that the strong economic growth would start feeding into inflation. Today investors will get a chance to hear what a few other Fed officials have to say after yesterday's data. We do not see any strong drivers that could force gold out of its recent $1,275-1,280/oz trading range and expect it to trade at the lower end of this range. We note that gold has been stuck within a corridor of $1,265-1,285/oz for most of the past month.