Commodities. Oil and Gold Daily - October 13, 2017

> Oil prices range-bound amid wave of key global data. The front-month December Brent contract reached an intraday high of $56.8/bbl at midday but began to slide and even broke below $56/bbl for a very brief time. After the release of the EIA inventory data, prices experienced volatile sideways trading within the $55.9-56.6/bbl range and eventually settled at $56.25/bbl, down $0.69/bbl on the day. Around midday, prices were being pressured by the IEA monthly report, which highlighted that OPEC production would need to average 32.5 mln bpd next year for the global market to be balanced. This is 0.2-0.3 mln bpd below the OPEC output figures seen so far in 2H17 and effectively means the production cuts would need to stay in place through end 2018. This is mainly the result of more subdued global oil demand growth projections for next year, with both the OPEC secretariat and the IEA now expecting growth of 1.4 mln bpd y-o-y, below the IEA's forecast for this year of 1.6 mln bpd growth. Both agencies calculated that OECD crude and refined product inventory levels were running 170 mln bbl above the five-year average in August, while preliminary IEA data shows the gap continuing to shrink in September to 150 mln bbl, which is a bullish sign that the market rebalancing is continuing despite the hurricane disruptions.
Another key driver yesterday was the weekly US inventory update, which in our view was mostly bullish and, given the positives mentioned above, could push Brent up to the $57-57.5/bbl range today. The EIA reported that crude stocks fell around 2.75 mln bbl to 462.2 mln bbl last week despite a 0.4 mln bpd surge in imports and a weekly 0.7 mln bpd dip in exports. This was mainly driven by a 0.23 mln bpd increase in refining inputs, as refiners continue to recover from the disruption caused by Hurricane Harvey and a slight decrease in oil production, which is likely to continue the following week due to Hurricane Nate. Yesterday, investors were worried about another w-o-w increase in gasoline inventories (by 2.5 mln bpd), which continued to move above the five-year average. However, we do not think this is strong enough to prevent the US market from rebalancing in 4Q17, as gasoline demand so far remains healthy (though it will soon inevitably and seasonally dip) and the latest surge in inventories was caused by a decrease in exports, which are likely to rebound later in the year. The distillates market continues to tighten and given a cold winter (as the OPEC secretariat projects), this should ensure a decrease in total (oil and refined product) inventories.
> Gold prices steady; raft of US economy data looming. Gold traded sideways yesterday in the $1,290-1,297/oz range, buffeted by a strengthening dollar and declining US Treasury yields. ECB President Draghi yesterday said the ECB plans to keep interest rates low, a factor that provides fundamental support but also pressures gold: The lack of a tight ECB monetary policy is pressuring yields on alternative, low risk investment such as Eurobonds but is also weakening the euro, which is supportive for the dollar and negative for gold. US PPI was up 0.4% m-o-m in September, indicating a pickup in inflation and backing the Fed's intention to hike rates this year. Today investors will eye September US retail sales and CPI data at 15:30 Moscow time. The market expects headline CPI to jump to 2.3% y-o-y and the core measure to edge up to 1.8%, which would support the dollar. We think gold is likely to remain around $1,295/oz, drawing some support from the political uncertainty in the US, where healthcare reform as well as the recently proposed tax reform continue to face obstacles. Today, US President Trump is likely to remove his backing for the deal to halt Iran's nuclear program, elevating geopolitical uncertainty.