Commodities. Oil and Gold Daily - October 6, 2017

> Oil prices surge as Gulf Coast prepares for storm Nate. After trading below $56/bbl at early in the day yesterday, Brent for December delivery started to climb. It gained almost $1.5/bbl to reach an intraday high of $57.2/bbl, but later fell slightly and ended the day at $57.0/bbl, up $1.2/bbl on the day. The new storm, Nate, making its way through the Gulf of Mexico, has taken center stage for the market and will continue to command its focus. It has developed quickly and is expected to move ashore over the weekend in Louisiana, the home of major US refineries that were severely hit by Hurricane Harvey not too long ago. As was the case with Harvey, it remains to be seen which segment of the oil industry - upstream or downstream - will be hit harder. Gulf Coast drillers have already taken precautionary measures, shutting down operations and evacuating workers. As of midday yesterday, according to official data, almost 15% of offshore production was halted, which is equivalent to around 0.25 mln bpd. On Nate's path lie deepwater facilities that produce in excess of 1.6 mln bpd of crude, or 17% of total US oil production.
The storm, as well as the flooding that will accompany it, may be worse news for ports (which are still busy clearing the backlog of cargo caused by Harvey) and refiners than for producers. So far, most refiners are monitoring the storm, waiting to decide on whether major precautionary measures like production reductions and worker evacuations are necessary. Depending on the storm's severity, it could take up to a few weeks for refining activity to recover, although potential disruptions could coincide with stoppages planned for seasonal maintenance in October, when demand for motor fuel eases. In our view, the bullish impact of the storm will be short-lived and its longer-term net effect will probably be neutral, since it is likely to reduce both imports and exports. In other words, we think that refiners could reduce inputs in proportion to the decrease in offshore crude production. Even though officials have told residents from Florida to Texas to prepare for the storm, large-scale evacuations, and thus a sudden surge in gasoline demand, are not expected. In our view, Brent will remain near $57/bbl, with more upside than downside risk, as the upstream will definitely be affected, but the storm's later path is uncertain. Another upcoming source of upside risk is the likely closure over the weekend of a border crossing between Iraq and Turkey, as well as airspace, as a response by the Turkish government to the recent independence referendum in Iraqi Kurdistan, which increases the risk that the major 0.6 mln bpd Kirkuk-Ceyhan pipeline will be blockaded by Turkey.
> Gold drops below $1,270/oz, may fall further. Gold broke above $1,275/oz early yesterday and came close to $1,280/oz, only to fall back into its previous $1,270-1,275/oz range, and then break below key support at $1,270/oz. This morning it is treading water near $1,268/oz. We see more downside than upside risk ahead of the release of the September US jobs report at 15:30 Moscow time. Nearly all analysts expect the payrolls figure to be weak due to the recent hurricanes (the consensus estimate is 80,000, versus August's 156,000 print). Given the low expectations, we think there is a good chance this data will either surprise to the upside or be written off completely. The average hourly earnings growth figure will be of greater importance than usual. If it comes in strong (the consensus is 0.3% m-o-m), this could drive the dollar higher and push gold closer to $1,260/oz.