Commodities. Oil and Gold Daily - October 2, 2017

> Oil prices retreat on rise in OPEC production in September. The new front-month Brent contract (for December) was hovering above $57/bbl on Friday morning but broke below this level around noon and eventually settled at $56.79/bbl, down $0.37/bbl on the day. Oil prices are now consolidating around levels seen a week ago, prior to the escalation of geopolitical tension in the Middle East stemming from Turkish President Erdogan's threats to block Kurdish oil exports via the 0.6 mln bpd Ceyhan pipeline in an attempt to halt the Kurdish independence referendum. On Friday, oil prices reacted negatively to the publication of preliminary September OPEC production data by Reuters. Since April, OPEC's total output had been increasing at a solid pace, driven by Libya and Nigeria, but in August, total OPEC crude output, including the countries not obliged to cut production, fell 0.34 mln bpd m-o-m to 32.66 mln bpd (the new revised figure for August). However, Friday's report showed production on the rise once again, with the September figure coming in at 32.72 mln bpd, up 0.06 mln bpd m-o-m. The gain was largely driven by a rise in Libyan output, which remains 0.1 mln bpd below the YTD high and thus has the potential to grow further should pipeline disruptions ease. Saudi production was up 0.02 mln bpd to 10 mln bpd (still way below the 10.544 mln bpd base used for the cut), and so were Saudi exports, driven by an ease in seasonal crude burn for power needs. Nigerian output eased 0.03 mln bpd to 1.82 mln, also driven by pipeline disruptions. We think the m-o-m OPEC production growth in September will continue to weigh on prices this month and be reflected in the OPEC and IEA monthly reports scheduled for release on October 11 and 12, respectively. We think Brent will find fundamental support and trade around the $56/bbl level this week.
> Gold prices slide amid weaker euro driving dollar index higher. Gold hovered above $1,285/oz on Friday morning but then started to weaken and is currently trading just above $1,270/oz, a move supported by the strengthening dollar. We expect the dollar to post further gains this week with a potential Fed rate hike in focus. Janet Yellen is scheduled to speak on Wednesday. Our FX analysts note that the controversial independence vote in the Spanish region of Catalonia could result in serious political turbulence in Spain and translate into a more negative tone for the euro in the short term. We think this factor will keep gold prices under pressure for the rest of today.
With regard to the North Korea issue, the US position has become less clear, with US President Trump saying any talks between the two sides would be a waste of time but US Secretary of State Rex Tillerson unsuccessfully trying to communicate directly with Pyongyang to pursue peaceful avenues. The current situation is clearly pointing to a reduction in geopolitical tension, so we expect gold's uncertainty premium to shrink further this week.