Commodities. Oil and Gold Daily - October 24, 2017

> Oil finds support from unexpected decline in exports from southern Iraq. After hovering just below $58/bbl early yesterday, Brent for December delivery started to move lower and eventually settled at $57.37/bbl, down $0.38/bbl over the session. We had expected prices to come under pressure yesterday due to recent movements in contract differentials (the Brent December-January spread has tightened to $0.13/bbl from $0.4/bbl in the middle of last week). This morning, Brent has so far been stable and is trading within the $57-57.5/bbl range, supported by an unexpected fall in oil exports from southern Iraq in October. As we wrote yesterday, around 0.6 mln bpd of production is located near Kirkuk, and some 0.4 mln bpd of this is currently offline. As a result, volumes shipped via the 0.6 mln bpd Kirkuk-Ceyhan pipeline (the northern export route) recently fell to as little as 0.2 mln bpd, though they are now gradually recovering and currently stand at 0.29 mln bpd. The Iraqi Oil Ministry has reacted by announcing that it will substitute 0.2 mln bpd of lost production with volumes from the southern region of Basra that were capped to comply with the OPEC+ production cuts.
Given that investors were mainly focused on the statement and anticipating a pickup in southern exports and given that the conflict is disrupting northern supplies, the results of the latest Reuters survey came as a bullish surprise and headed off a technical correction. The survey showed that exports from southern Iraq (the main export route) eased 0.11 mln bpd m-o-m in October to 3.13 mln bpd. The drop in exports from southern Iraq is mainly due to adverse weather delaying waterborne shipments. The final reading on Chinese September trade data remained strong, with the estimate for oil imports remaining at 9 mln bpd. Market players are also starting to switch attention to the midweek US inventory data and expect a bullish outcome, with the Reuters poll indicating expectations of a 2.5 mln bbl w-o-w decrease in crude inventories and 1.5 mln bbl drops in gasoline and distillate stocks. We think these factors could cap any price losses today, though front-month Brent retreating below $57/bbl today is still in the cards.
> Gold prices stabilize as investors willing to buy below $1,275/oz. Gold prices held stable yesterday morning, hovering just above the $1,275/oz mark, before edging lower despite a gradual weakening in US Treasury yields. However, the dip proved short-lived, as gold suddenly found strong buying interest at $1,274/oz and investors willing to trade as high as $1,283/oz later in the day. This morning, a pickup in both the dollar index and Treasury yields has put pressure on gold, which is trading just below $1,280/oz. Yesterday US President Donald Trump drew investor attention to the selection of the next Fed chair by saying that he is "very, very close" to making a decision and that he is likely to choose between Jerome Powell and John Taylor. We think investors would react cautiously to either option. We expect a rather quiet session today, with gold likely to remain in the $1,275-1,280/oz range given the support it found yesterday below the lower end of this range.