Commodities. Oil and Gold Daily - November 30, 2017

> Oil range-bound after JMMC meeting... The front-month Brent January contract traded sideways yesterday within a $62.60-64.00/bbl range, eventually settling at $63.11/bbl, down $0.5/bbl on the day. The February contract, which will take over front-month status tomorrow, closed yesterday at $62.53/bbl, down $0.71/bbl on the day. Yesterday, investors were watching the Joint Ministerial Monitoring Committee (JMMC) meeting in Vienna closely for any signs of a consensus between Russia and OPEC and also to try to get a sense of what type of extension may be forthcoming (given that ahead of the JMMC meeting all parties had already expressed a view that the deal should be extended). Although the post-meeting comments were not particularly revealing - the press was largely told that all details on the timeline of the deal extension would be announced today - what has seemed to emerge is that it will be either a six- or nine-month extension. When we looked closely at all the comments, we came away assuming that a nine-month extension through the end of next year is the most likely outcome. Note that, because a nine-month extension seems to be priced in, anything short of that would likely bring the oil price down following the announcement. However, what is very key is whether there will be an official announcement of a mid-year review of the deal. Such a move would make sense, as OPEC+ desires neither to overheat the market nor lose control of it. However, as we have noted before, in investors' minds a mid-year review would effectively make this not a nine-month but a three-month one. This would also pressure prices. Given the above, we think that Brent is likely to retreat today on a mid-year review announcement. Note that after the last OPEC meeting the lack of any bullish surprises led to a $3/bbl decrease. Possible bullish surprises this time, however, such as the inclusion of Nigeria into the deal or introduction of new participants, would not likely be material for market balances, and we do not expect this to prevent prices from falling but only make a decrease less pronounced.
> ... and the weekly EIA inventory report. On the release of the latest EIA report, Brent hit its intraday high of $64.0/bbl, only later plummeting to its intraday low of $62.6/bbl. The good news of a w-o-w draw in crude stocks (3.4 mln bbl), which was supported by the Keystone disruption that led to a 2.9 mln bbl draw at Cushing alone, gave the market a shot in the arm. But this gave way to a more sober look at the data, which we think points to possible bearish developments with product inventory levels next month. As we have been expecting, increases in refinery inputs (which increased by almost 1 mln bpd to 17 mln bpd in November) have started to result in builds in product inventories (the latest report showed a 3.6 mln bbl w-o-w build in gasoline and a 2.7 mln bbl build in distillates). In addition, we saw demand decrease for both product categories w-o-w. We expect product stock builds in December and pressure on prices because of it.
> Gold retreats on rising Treasury yields and dollar amid strong US data. Gold was trading around $1,295/oz early yesterday before plummeting to as low as $1,282/oz. Both Treasury yields and the dollar drew strong support from the revised US 3Q GDP growth estimate of 3.3%, which exceeded expectations by 0.1 pp. Further support came from an upbeat speech by outgoing Fed chair Janet Yellen, who said that the US economy had gathered steam, warranting further rate hikes. She also argued that currently subdued inflation should pick up and eventually hit the Fed's 2% target. Gold's safe-haven appeal was lost, as after the North Korean missile launch the US provided only a strong verbal response, with no pickup in military activity. Today, investors will eye the developments surrounding the US tax bill, which could be voted on. We think that gold is likely to slip to the $1,275-1,280/oz range today, though much depends on the progress of US tax reform.