Commodities. Oil and Gold Daily - November 23, 2017

> Oil range-bound after drop in US oil inventories and rise in rig count. The front-month Brent contract was trading at around $63.2/bbl ahead of the EIA report yesterday. The release sparked a brief selloff that dropped Brent $0.25/bbl to an intraday low of $62.6/bbl. The decline was, however, short-lived. Brent quickly pared back its losses, eventually settling at $63.32/bbl, up $0.75/bbl on the day. We had been expecting Brent to draw support from yesterday's EIA report, anticipating a 3-4 mln bbl w-o-w drop in crude stocks (the Bloomberg median estimate was a 2.2 mln bbl draw), after the API announced a massive 6.4 mln bbl decrease to 455 mln bbl on Tuesday. The EIA, however, reported a smaller and less bullish 1.85 mln bbl decrease to 457 mln bbl, which failed to excite the markets. Today, trading activity will be subdued due to Thanksgiving in the US. Brent is likely to hold near $63/bbl for the rest of the day.
The EIA data also showed a notable 1.8 mln bbl draw at Cushing, which many attributed to the Keystone pipeline disruption. Here we would like to note that the pipeline flow was disrupted on Thursday last week, while the EIA data ran through Friday, meaning that it only included one day of the disruption. Therefore, an even larger draw at Cushing can be expected next week, especially after the recent announcement that the pipeline will run at a reduced capacity through the end of the month. This would provide additional support for WTI, further narrowing its spread to Brent. The headline crude stock draw was also driven by a 0.46 mln bpd rise in exports and another increase in refinery runs - this time by 0.2 mln bpd to 16.8 mln bpd. US oil production expanded yet again, advancing another 0.013 mln bpd to almost 9.66 mln bpd. US output growth remains a major bearish factor. We note that Baker Hughes yesterday reported a nine-unit rise in the US oil rig count, marking the first increase over a month-long period since July. This suggests that the US shale industry has reacted quickly to the higher oil prices. We think that the upturn in active oil rigs will increasingly weigh on prices over time.
EIA gasoline stocks were barely changed w-o-w, as a notable increase in European imports was met with a surprising w-o-w pickup in demand, which was at an all-time high for this time of the year. Distillates posted a slight 0.27 mln bbl increase, with demand remaining close to the seasonal average. Refined product inventory levels remain close to their five-year averages despite the recent strong pickup in refinery runs. The market is approaching a time of the year when gasoline and distillate stockpiles typically build. Demand will have to remain strong for this trend to be bucked. Given how high refinery runs are currently, we think builds are likely in December.
> Gold rises and remains elevated on US data, Fed minutes. The gold price broke above its recent $1,280-1,285/oz range midday yesterday and kept rising, nearly breaking above $1,295/oz later in the day. Although this morning it has come down to just below the $1,290/oz level on profit taking, it is likely to hold near this still-elevated level amid subdued trading due to the US Thanksgiving holiday and a likely weakening in the US dollar (for more details, please see today's Russia FX Beat). Gold has drawn support from both a weaker DXY and lower Treasury yields. Regarding the former, the first blow came from a drop in October US durable goods orders (down 1.2% versus an expected 0.3% pickup), which implies less investment in business equipment. The second blow was delivered by yesterday's Fed minutes, which, in line with our expectations, revealed nervousness within the Fed's ranks over the subdued inflation in the US. Market participants have in fact started to doubt the Fed's previous guidance of three rate hikes next year (two now seems a more likely outcome), though a 25 bp hike on December 13 still appears to be a sure thing.