Commodities. Oil and Gold Daily - November 28, 2017

> Oil remains range-bound, Keystone and OPEC officials in spotlight. After trading around $63.8/bbl early in the day yesterday, the front-month Brent contract slid toward, and eventually hit, an intraday low of $63.17/bbl. It then began to pare losses and settled at $63.86/bbl, down $0.02/bbl on the day. It was the fifth consecutive session when the contract ended the day in a range of $63-64/bbl. Yesterday also saw WTI weaken against Brent, the spread between the two widening to $6/bbl late yesterday from $5/bbl at the start of the day. This was triggered by a statement by the operator of the Keystone pipeline, TransCanada, that it would bring operations back online today - but at reduced capacity (in line with a previous announcement that the pipeline would run at reduced capacity through end November). In addition, nothing was said about when the pipeline would return to full capacity. The latest EIA data showed a notable 1.8 mln bbl draw at Cushing, which many have attributed to the Keystone pipeline disruption. Still, this data only included one day of the reduced supplies, so we expect that there was an even larger draw last week, which would support prices.
Investors continue to digest the latest comments of OPEC officials, searching for clues about the still-uncertain outcome of Thursday's OPEC+ meeting. Yesterday, OPEC Secretary General Mohammed Barkindo said that the organization estimated the surplus of OECD crude stocks above their five-year average at 140 mln bbl as of October. Even though the surplus has shrunk from a peak of 380 mln bbl, there is still a long way to go to fully rebalance the market. Last week, an OPEC group estimated that the earliest it could be erased was June 2018. All major OPEC+ officials have emphasized their commitment to fully rebalancing the market, which entails an extension of the current agreement that ends in March. This morning, the Saudi energy minister said that it was still too early to talk about the duration of an extension and that the final decision should be in the interests of all parties. We think that his comments suggest that the deal will definitely be extended but for a shorter time than the market is pricing in (we think that a nine-month extension is already priced in). For today, we doubt that Brent will escape from its recent $63-64/bbl range. It should receive some support from API inventory data and push closer to $64/bbl overnight.
> Gold still seeing support from dollar weakness. After breaking above $1,290/oz early yesterday, gold surged to an intraday high of $1,299/oz, but only for a short while. It eventually consolidated in the $1,290-1,295/oz range. This morning it is hovering in the middle of that range, mirroring the dollar's moves. Yesterday's unexpectedly strong US October home sales data (the highest print since October 2007) saved the day for the dollar, which helped bring gold down from its intraday high. Our FX analysts noted today that the dollar could benefit from US tax reform progress on Thursday. President Donald Trump tweeted that reform is "coming along very well," which may slightly brighten the prospects for the Senate vote on Thursday. Today's main event is Fed chair nominee Jerome Powell's Senate confirmation hearing at 18:00 Moscow time. His introductory comments, released overnight, were uncontroversial. We do not expect this event to generate volatility but believe it should be watched closely. We thus expect gold to stay in its $1,290-1,295/oz corridor today but see strong potential upside after Japan's announcement that it had detected radio signals hinting that North Korea might be preparing for its first ballistic missile test since September.