Commodities. Oil and Gold Daily - November 9, 2017

> Oil price volatile following EIA US inventory report. The front-month Brent contract was trading at around $63.5/bbl early yesterday but dipped to $63.1/bbl ahead of the EIA report. The release sparked a short period of choppy trading before the price began to surge and peaked at an intraday high of $64.62/bbl. It failed to hold on there and retreated back below $64/bbl before eventually settling at $63.49/bbl, around the level it was trading before the release, some $0.2/bbl below the previous settlement. We had expected a correction in the event of the data coming in close to consensus as Brent had gained almost $4/bbl over the previous three trading sessions. We still expect Brent to consolidate within the $62-63/bbl range for the rest of this week.
Such volatile trading reflected the mixed nature of the EIA report. The most bearish element came from crude oil stocks, which rose 2.2 mln bbl w-o-w to 457 mln bbl in the week to November 3, as crude is the one remaining category in a large surplus in the US. The increase in stocks came despite a 0.2 mln bpd drop in imports and a 0.2 mln bpd surge in refinery inputs. This was not enough to offset the relentless increase in US oil production by another 0.067 mln bpd to 9.62 mln bpd, combined with a w-o-w drop in exports by almost 1.3 mln bpd. Stocks in Cushing were also up and remain above the five-year seasonal high, which will continue to weigh on WTI. US commercial crude stocks remain a sizable 60 mln bbl above the five-year average, and changes in this figure will determine prices for the rest of November, in our view.
Strong refined product data saved the day, maintaining hope that the US crude oil surplus will shrink at some point. Gasoline stocks dropped by a hefty 3.3 mln bbl w-o-w as demand remained high and above the five-year seasonal high. Distillate stocks also fell by 3.3 mln bbl amid strong demand, putting them in line with the five-year seasonal high. Strong refined products demand implies that refiners will be kept busy driving domestic oil consumption higher, especially in December, when maintenance season ends. As demand remains firm, a rebound in oil exports (which is likely given the wide WTI/Brent spread) could result in an unseasonal crude stock draw in the weeks to come, providing further fundamental support to prices, which are now at elevated and speculative levels amid expectations that the OPEC+ deal will be prolonged through 2018.
> Gold prices surge amid support from yen and a dip in DXY. Gold was trading at $1,275-1,280/oz yesterday morning before breaking above $1,280/oz and falling just short of the $1,287/oz level. The surge was triggered by a strengthening yen (with which gold is positively correlated) amid a stable DXY and Treasury yields. The yen was pushed higher by the Topix and Nikkei indexes, which broke above multi-year highs. Later in the day, gold and the yen retreated, but this morning gold has pared back those losses to trade at the upper end of the 1,280-1,285/oz range amid a sharp drop in the dollar. DXY is being driven lower by the complications surrounding US tax reform. Our FX analysts think that substantive progress by year end would be an achievement. Today's schedule is quiet, with further dollar weakening unlikely, so gold should stay within the current 1,280-1,285/oz corridor.