Commodities. Oil and Gold Daily - September 1, 2017

> Prices surge on divergence in EIA estimates on US production... Yesterday, the new front-month Brent contract, for November delivery, started the day trading calmly near $50.7/bbl but then surged to as high as $2.20/bbl midday. It eventually settled at $52.86/bbl, up $2.16/bbl on the day. Yesterday, the market's attention switched from the effects of Hurricane Harvey on the US oil industry to the usual data releases. However, severe weather remains in the headlines as a new, quickly developing hurricane, named Irma and now approaching the Caribbean from the Atlantic, has caused fears that the Gulf Coast will be struck again. Harvey's impact on the US oil industry will be actively traded in the middle of next week after US inventory data is released. We expect prices to be pressured on the back of likely builds in crude inventory, since crude consumption is expected to strongly decline.
The EIA oil production report for June, released yesterday, showed a strong divergence with the EIA's own weekly estimates. Weekly estimates had shown production at 9.3 mln bpd in June, while yesterday's report showed production at 9.1 mln bpd, actually down m-o-m by 0.07 mln bpd because of field maintenance in Alaska. As we wrote in yesterday's Oil and Gold Daily, it has been widely rumored that there is a discrepancy between the data sets because of the different methods used to gather the data (weekly data is the result of mathematical estimates, not survey responses); still, the size of the divergence was surprising. This is good news for oil bulls as it means that traders have been overly bearish when reacting to what is, in fact, inflated US production data.
> ...and on reported fall in OPEC production in August. Over the last two months, oil prices had reacted negatively to the publication of preliminary OPEC production data and, since April, output had been increasing at a solid pace, driven by Libya and Nigeria; but, yesterday, a Reuters survey showed that total OPEC crude output, including countries not obliged to cut production, had decreased from 33 mln bpd in July to 32.83 mln bpd in August. Given the likelihood of oversupply because of Harvey-related refinery disruptions, this is a bullish development. The decline was largely driven by disruptions in Libya (where production fell 0.13 mln bpd m-o-m), which we had discussed many times last month. In addition, Iraq, Saudi Arabia, Kuwait and Venezuela contributed.
> US inflation data supports gold, upbeat jobs data eyed. After the Fed's preferred inflation gauge, the core PCE, showed that prices had risen 1.4% y-o-y in July and Treasury yields and the dollar weakened in response, gold prices surged to an intraday high of $1,323/oz yesterday, escaping the $1,300-1,310/oz range. The inflation data once again raised questions about the likelihood of another rate hike by the Fed this year. Today, all eyes will be on the US nonfarm payroll report (15:00 Moscow time), which has been strong recently. A tightening labor market and growing wages in the US are supporting the dollar, pressuring gold, creating, in theory, upward pressure on inflation and pushing growth higher. We expect the data to be strong and, combined with profit-taking, push gold closer to $1,310/oz later in the day today.