Commodities. Oil and Gold Daily - November 8, 2017

> API data neutral; Chinese customs show large drop in imports in October. The Brent January contract almost broke above $64.6/bbl early yesterday before easing back to $63.69/bbl, $0.58/bbl below the previous settlement price. Post-settlement, Brent lost around $0.4/bbl and was trading around $63.3/bbl this morning after the release of API inventory data, which showed a 1.6 mln bbl decline in US crude stocks to 455.2 mln bbl in the week to November 3 (close to the EIA's figure of 455 mln bpd for last week), versus the Bloomberg consensus of a 2.5 mln bbl decline. The crude draw was largely driven by 0.45 mln bpd w-o-w rise in refinery runs, with a rise is imports falling just short of offsetting the gains in runs at 0.43 mln bpd to 7.5 mln bpd. We expect the EIA data, scheduled for release at 18:30 Moscow time today, to come in close to the consensus in terms of crude oil stock draw; however, any strong surprise to the upside (an oil stock draw exceeding 5 mln bbl, in our view) would bring Brent closer to $64/bbl territory, as crude is the one remaining category in large surplus in the US.
However, we view this as unlikely given that the API's refined products data was mixed (so we expect little support for prices from this category), with gasoline inventories up 0.52 mln bbl, versus the Bloomberg consensus forecast of a 1.9 mln bbl decline. Meanwhile, distillate stocks were down by a large 3.1 mln bbl, versus the Bloomberg consensus of a 1 mln bbl decline. Given the scale of the latest oil price surge, we think profit taking and a correction back toward the lower end of the $62-63/bbl range is in the cards straight after the EIA inventory release, with other data recently published supporting the bears. In its short-term energy report released yesterday, the EIA raised its US production growth forecast for 2018 from 0.68 mln bpd to 0.72 mln bpd to an average of 9.95 mln bpd, despite a recent slowdown in the rig count and the latest eight oil rig decrease, which drove Brent above $62/bbl on Friday.
This morning, preliminary Chinese customs data indicated a 2.7 mln bpd m-o-m drop in oil imports in October to 7.3 mln bpd. We expect softer import volumes in November as well given the 1 mln bpd m-o-m surge to 9 mln bpd in September. However, the scale of the drop in October exceeded most expectations and will be one of the main factors pressuring prices today and in mid-November, when the final estimates will be revealed. Over the longer term, we think the seasonal need to build refined product stocks ahead of Lunar New Year (which falls in February) will be notable, driving demand for crude in December.
> Gold stabilizes as dollar dips on tax reform delays. Gold was on the defensive yesterday morning and lost almost $10/oz later in the day, coming close to breaking below $1,272/oz, before the Washington Post revealed that Republicans are likely to allow the proposed tax reform to be postponed for a year to comply with Senate rules. In theory, the proposed tax cuts should support the dollar, as they should drive US economic growth higher. However, the rumored delays are starting to weigh on the dollar, pushing gold higher, which has this morning rebounded to the $1,275-1,280/oz range this morning.
As expected, US President Trump commented on the North Korean issue during his visit to South Korea, stating that by developing weapons of mass destruction, the North Korean leader has put his regime in "grave danger." However, Trump played down the prospects for direct military conflict and did not repeat previous promises to "totally destroy" North Korea, capping gold's potential to surge on geopolitical uncertainty. We expect relatively quiet trading today, with EUR/USD likely to trade closer to 1.155 and pressure gold down to $1,270/oz.