Commodities. Oil and Gold Daily - October 4, 2017

> API reports crude inventory draw, but prices fall on large gasoline builds. The front-month December Brent contract was trading around the $56/bbl mark for most of yesterday and eventually settled at that level, down $0.12/bbl on the day. Post-settlement, Brent lost almost $0.3/bbl following the API release, which showed that US crude stocks had fallen 4.1 mln bbl to 465.4 mln bbl in the week to September 29, diverging from the Bloomberg consensus forecast a 0.5 mln bbl increase.
The data also showed a small but rather important w-o-w decrease of 0.075 mln bpd in crude refinery runs. This is a rather bearish development, suggesting that refinery runs (at 16.17 mln bpd, according to last week's EIA data) are not going to climb substantially or come even close to the 17.7 mln bpd pre-hurricane rate. A pickup in refining inputs and surge in exports (which recently reached a record high 1.49 mln bpd) were two factors that could have ensured that oil inventories would continue to be drawn in 4Q17. October and November are the seasonal maintenance months for US refiners, which implies that for the next two months, the weekly changes in crude stocks will be more sensitive to and depend a lot more on the imported volumes. Last week's API import data was supportive, showing a strong 0.35 mln bpd draw w-o-w to 7.4 mln bpd.
While the API crude oil data was mixed, the refined product data definitely provided good news for oil bears. Gasoline inventories surged 4.9 mln bbl, indicating that end-user demand cannot even keep up with the lowly post-hurricane production rates (the Bloomberg consensus was for a 1 mln bbl w-o-w increase). Distillates drew 0.58 mln bbl, below the Bloomberg consensus of a 1.5 mln bbl w-o-w decrease, and also suggesting a slowdown in demand. The EIA's inventory report will be released today at 17:30 Moscow time, and we expect it to fuel rather bearish 4Q17 expectations (in line with the latest API data) that crude and oil product inventories will at best remain at current levels and see no drawdowns. For oil prices to rise, we think the market needs to see the capitulation in the US - the one major oversupplied crude oil market still remaining - and given the latest numbers, it is hard to be sure that rebalancing will fully unfold in the US in 4Q17. Given the above, we see Brent retreating closer to $55/bbl by today's close.
> Gold prices stabilize as uncertainty builds over next Fed chair. After hovering just below $1,270/oz early yesterday, gold started to pare back some of the previous day's losses, surging by about $5/oz to $1,275/oz, where it is currently trading. The steady decline from the YTD high of $1,357/oz reached on September 8 was halted by a weakening in the dollar index and US Treasury yields amid rising concerns over the next Fed chair, with Donald Trump currently interviewing candidates. Today, investors will eye Janet Yellen's speech at 22:15 Moscow time. She is on the short list and could be reappointed, as Trump has suggested. A decision is expected within the next two weeks. Yellen's term expires in February. We think gold would definitely benefit from a less hawkish candidate being appointed or indeed if a more hawkish candidate (former Fed governor Kevin Warsh, for example) is appointed. Our FX analysts have noted that it is unclear whether Yellen's speech today will be market-relevant, with possibly weak ADP employment data at 15:15 Moscow time putting pressure on the dollar - a move that would keep gold in its current $1,275-1,280/oz range.