Commodities. Oil and Gold Daily - October 9, 2017

> Oil prices ease on lack of clear signs of OPEC+ deal extension. After trading near $57/bbl on Friday morning, Brent for December delivery started to slide and ended the session at $55.62/bbl, down $1.38/bbl on the day. We still consider the current level to be the fundamental equilibrium and think that the surge in the price to $57/bbl on Thursday last week was speculative, spurred by the Saudi king's visit to Russia to meet President Putin, as the market is watching intently for any hints that the OPEC+ deal will be extended until end 2018. At the Russian Energy Week forum earlier in the week, Putin noted that any agreed extension should last until at least end 2018, a period longer than had been assumed or proposed by any other official. However, the Kremlin later clarified that Putin's comments did not constitute an official proposal but were rather aimed at highlighting the possibility. The Saudi energy minster effectively and diplomatically downplayed such a long-term extension by stating that Saudi Arabia was "flexible" on the suggestion, which sent prices back below $56/bbl. The Saudi energy minister has suggested that Saudi Arabia and Russia should reach a consensus on the production cut deal within the next two weeks, ahead of the crucial OPEC meeting on November 30. We suspect we might see a very similar development to the one we observed earlier this year, when Saudi Arabia and Russia agreed to propose the extension to 2Q18 weeks ahead of the OPEC meeting in Vienna in late May.
> Oil set to recover after sliding on Friday as Nate bypassed refiners. This morning, Brent is still trading in the $55.5-56.5/bbl range it entered early last week, though we anticipate a gradual drift higher toward the upper end of the corridor today and tomorrow. Backing this view is the fact that Hurricane Nate bypassed the major US refining center in Louisiana and should thus have a minimal impact on domestic crude demand. At present it looks as though crude supply has been affected more than crude demand (which is bullish), as Gulf Coast drillers took precautionary measures by shutting down operations and evacuating workers. According to latest data, almost 90% of offshore Gulf production has been halted, which is equivalent to around 1.5 mln bpd.
> Gold bounces on North Korean uncertainty. Gold experienced choppy trading on Friday amid very noisy US employment data disrupted by the recent hurricanes, which delayed hiring and saw nonfarm payrolls fall 33,000 in September (the first drop since September 2010). The market appeared to brush this off and instead concentrated on wage growth, which was up a hefty 0.5% m-o-m and 2.9% y-o-y in September, significantly above the consensus (0.3% and 2.6%). The data pushed gold down to an intraday low of $1,261/oz, but it quickly rebounded to $1,275/oz as US wholesale inventories rose less than expected in August. Gold prices mirrored the US dollar index, with both closing virtually unchanged on the day. This morning, gold has spiked to $1,285/oz on geopolitical concerns after a Russian lawmaker returned from Pyongyang and said the chances of another North Korean missile test were very likely, while the US president and North Korean leader exchanged more threats over the weekend. We think gold will retreat closer to $1,275/oz later today as we expect geopolitical risk factor and surge in safe haven demand to ease rapidly again, as they have so often done this year.