Commodities. Oil and Gold Daily - October 26, 2017

> Oil prices range-bound after EIA US inventory report. Brent for December delivery, after trading at close to $58.40/bbl throughout the first half of the day yesterday, hit an intraday high of $58.70/bbl before the EIA report on US inventories. After that, it slid to an intraday low of $57.90/bbl but then recovered to eventually settle at $58.44/bbl, up $0.11/bbl on the day. The report, which, in our view, showed very bullish refined product data but bearish crude data, may keep front-month Brent at around $58.00/bbl for most of the day today. Crude stocks rose 0.85 mln bbl to 457.3 mln bbl last week, driven by a 0.64 mln bpd surge in imports and a 1.1 mln bpd w-o-w recovery in production in the Gulf of Mexico as the precautionary measures taken ahead of Hurricane Nate were lifted. Limiting the crude stock build was a 0.58 mln bpd increase in refining inputs to 16 mln bpd and a 0.12 mln bpd w-o-w surge in exports to 1.92 mln bpd. The current level of US commercial crude stocks is still a sizable 65 mln bbl above its five-year average. The lack of a crude stock draw was the main reason for the price correction immediately after the EIA report was released.
Refined product data, on the other hand, was bullish, balancing out the negative crude data. Gasoline stocks fell a massive 5.5 mln bbl w-o-w, helped by a drop in gasoline imports. Meanwhile, distillate stocks fell 5.2 mln bbl amid a surge in distillate exports. Gasoline stocks now exceed their five-year average level by just 4,000 bbl and distillate stocks are even below their five-year average level by 5,000 bbl. Refined products have led the gap between current US total inventory levels (refined products and crude) and the five-year average to fall to 92 mln bbl from 113 mln bbl at the start of October. We do not see any risk events for the rest of the week and expect front-month Brent to be stable in a range of $57.50-58.50/bbl.
> Gold bounces back on dollar weakness. Yesterday, gold once again avoided a fall through the $1,270/oz support level, which it had done on a couple of occasions since early August. Since reaching an intraday low of $1,271/oz yesterday, it has rebounded, reaching close to $1,283/oz early this morning. However, it failed to break through this level amid pressure from the dollar, which was recovering from yesterday's decline, a driving factor behind gold's surge. Yesterday, the DXY Index failed to break above long-standing resistance at 94 for the third time since August, which we attribute mainly to profit taking. All three of the dollar index's recent attempts to move above this level coincided with gold defending the $1,270/oz frontier. We expect this pattern (the DXY at 94 coinciding with gold at $1,270/oz) to hold in the medium term. Today, all eyes are on the ECB, which is expected to announce its plans for scaling back its quantitative easing program in 2018. As our FX analysts have noted, a key objective of the regulator will be to avoid triggering a surge in the euro. They believe the best way for the ECB to do this is to convince investors that QE will last for a long time to come. The policy decision is due at 14:45 Moscow time, and President Draghi will give more details at his press conference at 15:30. As a result, the dollar could strengthen midday. However, we see little room for the euro to weaken and expect gold to remain close to $1,280/oz.