Commodities. Oil and Gold Daily - October 10, 2017

> Oil prices stable as OPEC calls on US shale producers to cut production. Brent for December delivery was stable yesterday because of a holiday in the US, trading around the $55.7/bbl mark for most of the day, except for a short-lived dip to $55.1/bbl midday. It eventually settled at $55.79/bbl, up $0.17/bbl from Friday's settlement. This morning, investors are digesting OPEC Secretary General Mohammed Barkindo's remarks at the India Energy Forum. He called on US shale producers to realize the "current unique supply-driven cycle" and to share responsibility for balancing the oil market, effectively inviting them to join in on cutting production. He also expressed hope that other producers that have not yet joined the OPEC+ deal would come together to help the market to rebalance by cutting production. Recall that, on Sunday, he said "extraordinary measures may have to be taken" to stabilize the market next year.
We view Barkindo's remarks as a clear sign that OPEC is, in fact, aware that, despite the cuts slated for 1Q18, a surplus may remain in the global market in 1H18 (as major analytical organizations continue to project), which could make its efforts this year seem pointless and possibly pressure Brent below $50/bbl in a similar fashion to what happened in 2Q17. That would be an unfavorable scenario for US shale producers, which have struggled this year (WTI has had a hard time staying above $50/bbl) to deliver profitability and, as a result, have been pressured by shareholders to maximize production amid the low margins. Thus, because US shale producers have to produce more to expand profits, the chances of their cooperating with OPEC are negligible. The market agrees with our view, showing a rather muted price reaction to Barkindo's remarks. Still, front-month Brent is slowly making gains, trading near $56/bbl this morning. We stick to our view that today it will trade closer to $56.5/bbl as investors continue to digest the bullish effects of Hurricane Nate, which has curtailed US oil production more than refining.
> Gold steady at its current elevated levels, correction eyed. The gold price moved close to $1,285/oz yesterday on expectations of a possible long-range missile launch by North Korea. It then held this level, thus bucking the usual trend (seen numerous times this year) of very short-lived price gains on North Korea-related news. Gold also drew support from a slight dip in the dollar index yesterday, partly a result of a stronger euro on a m-o-m surge in German industrial output in August. Gold prices could retreat today, however, if North Korea does not mark the holiday commemorating the founding of the Korean Workers Party with a missile test (many expect Pyongyang to use the holiday as excuse to provoke the US). Another factor that could push gold lower is any strength in the dollar driven by weakness in the euro in light of Catalan President Carles Puigdemont's address to the Catalan parliament today at 19:00 Moscow time. Our FX analysts note today that the big question is whether he will make an outright declaration of independence that would trigger a huge backlash from Spain's government and a subsequent weakening of the European currency.