Commodities. Oil and Gold Daily - November 20, 2017

> Oil steady after Friday's surge following Keystone spill and al-Falih comments. Front-month Brent traded above $61/bbl early on Friday before starting to climb and eventually settled $1.36/bbl higher at $62.72/bbl. This morning, it is hovering above the $62.5/bbl mark, supported by events that occurred late last week. One of the major factors supporting oil on Friday was a crude oil spill in South Dakota from the 0.59 mln bpd Keystone pipeline. The pipeline supplies the US with crude produced at Canadian Alberta's oil sands and is set to be extended with the long-delayed 0.83 mln bpd Keystone XL project; the route is set to be approved by the Nebraska regulator today. Around 5,000 bbl were spilled, and if the pipeline remains offline for a week, this would create a backlog in Alberta and reduce supplies into Cushing by around 2 mln bbl. This development is also likely to support oil prices midweek once reflected in the US oil inventory data. Producers and market players are now waiting for the US Pipeline and Hazardous Materials Safety Administration to give the green light for shipments to resume. The last spill to occur involved 400 bbl in 2016 and took 10 months to clean up, with the pipeline taking nine days to be brought back online at a reduced rate.
Investors also drew positives from the Saudi energy minister's speech late last week. In our view, his comment that an extension of some sort is likely at OPEC's November 30 meeting implies that the cartel could opt to extend the deal in stages (if necessary), an outcome that would give oil bears the upper hand for some time. Market players were quick to concentrate on al-Falih's comments that the market would remain oversupplied through March 2018, thereby necessitating an extension to the OPEC+ deal. This has provided a fillip to those who thought a decision would be delayed until end 1Q18, as previously intimated by Russian Energy Minister Alexander Novak. We think Brent will continue to trade above $62/bbl early this week on the Keystone uncertainty. OPEC's Economic Commission will start preparing for the meeting later in the week, so market speculation on what to expect on November 30 is likely to emerge.
> Gold prices likely to ease after late Friday jump on US tax bill uncertainty. Gold hovered above $1,280/oz on Friday then surged to just short of the $1,297/oz mark against the background of a soft dollar. The move was triggered by elevated uncertainty over the new US tax bill. This morning, gold has eased from Friday's highs and is hovering above $1,290/oz on the back of a stronger dollar supported by a weaker euro, as German Chancellor Merkel has failed to form a new government with the collapse of coalition talks. Our FX analysts have described this as a surprise development that raises the prospect of fresh elections or that and attempt by Merkel to run a minority government. Germany provides huge stability in the eurozone, so the domestic uncertainty will shake investor sentiment. We expect eurozone assets to underperform over the short term. We expect latest developments in Germany to drive gold down to $1,285/oz today.