Commodities. Oil and Gold Daily - October 25, 2017

> Oil rises on Saudi minister's comments. Brent for December delivery started to climb at midday yesterday, when it was trading at around $57.50/bbl, and eventually settled at $58.33/bbl, up $0.96/bbl on the day. Prices began marching toward the $58/bbl mark during a speech of Saudi Energy Minister Khalid al-Falih. He was keen to emphasize that the countries party to the production cut deal would do "whatever it takes" to bring the global oil and refined products surplus down to normal levels, which he defined as the five-year average global inventory level. His speech coincided with the end of a two-day informal meeting of the OPEC Board of Governors. Reports suggest that it is leaning toward approving a nine-month extension that would keep the cuts in place until end 2018. In our view, al-Falih's comments make the approval of an extension beyond 1Q18 at OPEC's November 30 meeting nearly a given. The simple problem is that full rebalancing will most certainly not occur before the current deal expires, a view shared by many top analytical firms and even the OPEC Secretariat. Bullish sentiment was derived yesterday not only from confidence about cooperation within the group but also from a statement by al-Falih that the group was working to develop an "exit strategy" for after normal inventory levels were reached. The Board of Governors also discussed this. Market players had feared that OPEC would fail to take a formal position on an exit strategy, which is why the last OPEC meeting led to bearish results. In sum, al-Falih has extinguished this fear, which was weighing on the market for some time, helping upbeat sentiment to take over and push Brent's support level above the $57/bbl mark.
> API data sets the stage for bullish Wednesday. Post-settlement, Brent lost around $0.15/bbl on the API inventory data. It showed that US crude stocks had increased 0.52 mln bbl to 461.9 mln bbl in the week to October 20, versus the Bloomberg survey median estimate of a 3 mln bbl decrease. The key bearish point was a reported 0.63 mln bpd w-o-w surge in oil imports to 7.4 mln bpd. Still, in our view, if this is confirmed by the EIA data, which will be released at 17:30 Moscow time today, it will not weigh on prices thanks to the strong draws in gasoline and distillate stocks reported by the API yesterday (by 5.8 mln and 4.9 mln, respectively) and an estimated 0.33 mln bpd increase in crude refinery runs. We expect front-month Brent to break above $59/bbl later today.
> Gold retreats toward key support with Fed chair decision looming. Gold slid from an intraday high of $1,283/oz early yesterday, first breaking below $1,280/oz and then finding stability near $1,276/oz. Today, it continued its descent and began trading in the middle of the $1,270-1,275/oz range. It has avoided a fall through the $1,270/oz support level on a couple of occasions since early August, both times rebounding toward $1,300/oz. The latest wave of pressure has come from a further rise in the dollar and Treasury yields on the increasing likelihood that Stanford University economist John Taylor (who is seen as hawkish) will be appointed the next Fed chair. Yesterday, Donald Trump asked Senate Republicans who their favorite candidate was, and the majority reportedly said Taylor. We think the dollar will continue advancing today, helped by rising Treasury yields. We see gold struggling to hold above $1,270/oz and believe a drop slightly lower is possible.