Commodities. Oil and Gold Daily - November 21, 2017

> Oil steadies after pressure from Iraqi supply revival. Front-month Brent was trading above $62.5/bbl early yesterday before slipping to an intraday low of $61.5/bbl and then recovering to settle at $62.22/bbl, $0.5/bbl below the previous settlement. This morning, Brent remains above $62/bbl, and investors are switching attention to the upcoming US inventory data release and developments in Vienna, where OPEC will reportedly meet with shale experts from Citigroup on Wednesday to discuss the outlook for US crude production. OPEC's Economic Commission will begin a two-day meeting on Thursday, so market speculation on what to expect at the main meeting on November 30 is likely to emerge. We expect Brent to be rather quiet today, with Brent likely to continue trading around $62/bbl. API inventory data at 00:30 Moscow time tonight will head a wave of US data, followed by EIA data at 18:30 tomorrow. The weekly Baker Hughes rig count data will come out tomorrow and not Friday due to a US holiday on Thursday.
Oil prices came under pressure yesterday as news emerged that Iraq actually managed to substitute production lost in the north (due to the Kurdistan situation) by increasing supplies from the south. In mid-October, the Iraqi Oil Ministry announced that it would replace 0.2 mln bpd of lost production from Kirkuk with volumes from the southern region of Basra that had been capped to comply with the OPEC+ deal, leaving some investors rather doubtful over the possibility. We had previously expected Iraqi port exports to average 3.45 mln bpd in November, but the latest estimates show that southern exports averaged a whopping 3.5 mln bpd in the first 20 days of the month. Developments in Iraq will remain the focus for the market, where as much as 0.35 mln bpd of northern supplies (out of a total of 0.6 mln bpd) remains lost. However, Iraq and Kurdistan are working to restore production to be exported by pipeline from Kurdistan, spelling a potential bearish development if this fails to bring back down southern shipments when Kirkuk-Ceyhan supplies normalize.
> Gold prices stabilize after sliding yesterday; further pressure likely. Gold traded around $1,290/oz yesterday before retreating to $1,285/oz and then experiencing a sharp selloff all the way down to $1,275/oz. The fall was accompanied by a strengthening of both DXY and Treasury yields, with which gold traditionally exhibits a very strong inverse correlation. The yen, also considered to be a safe-haven asset and thus positively correlated to gold, also weakened yesterday. Dollar strengthening later in the day was the major driver behind the retreat in gold prices and stemmed from a weaker euro on political concerns in Germany, where the possibility of new elections has increased following the collapse of coalition talks. Chancellor Merkel now favors new elections rather than a weak minority government. Our FX analysts note that Germany has been a source of political stability during the eurozone's recent travails, and the risk that this might change would be euro-negative, in their view. Investor attention is also turning to the prospect of a December US rate hike, with the Fed minutes from the last Fed meeting scheduled for release tomorrow and possibly spelling higher bond yields, which would be negative for gold. This morning, gold has recovered from yesterday's lows and is trading around $1,280/oz on a slight elevation of geopolitical uncertainty fueled by Donald Trump's recent comment that North Korea has "repeatedly supported acts of international terrorism." We think gold is likely to ease closer to $1,275/oz later today on further DXY strengthening.