Commodities. Oil and Gold Daily - September 11, 2017

> Oil prices volatile amid increasing likelihood of OPEC deal extension. On Friday, Brent for November delivery, after trading steadily at around $54.7/bbl, slid to eventually settle at $53.78/bbl, down $0.71/bbl on the day. This morning, it has pared back some of the losses and was trading at around $54/bbl at the open. The losses were linked to expectations that Hurricane Irma would cause extensive damage over the weekend to the southeastern coast, a major driver of US energy demand, with up to 6,000 gas stations currently closed. Meanwhile, the US refining sector is recovering at a healthy pace after Hurricane Harvey: around 3.8 mln bpd of total US capacity remains offline, down from 4.1 mln bpd in early September.
The weekend brought good news for oil bulls. Saudi Energy Minister Khalid al-Falih met his Kazakh and Venezuelan counterparts to discuss extending the production cut deal. It is rumored that al-Falih discussed extending the deal with Russian Energy Minister Alexander Novak back in July at a ministerial meeting in St Petersburg. Kazakhstan has been struggling to achieve full compliance with the deal because of growing output from its major oilfield, Kashagan; this was discussed in the meeting over the weekend and, as we understand, an adjustment to the quotas for the country may now be in the cards. This might be part of an extension of the deal until end 2Q18 (from end 1Q18 currently), in our view, which seems justified given the seasonal dip in global oil demand due to refinery maintenance in 2Q. We think that the major obstacle to an extension will be the exemptions of Nigeria and Libya. The Venezuelan oil minister has emphasized in his statements that the exemptions and their effects need to be analyzed. Today, investors will mostly be occupied with evaluating the damage caused by Irma, which is moving north of Florida but has eased. On the other hand, prices should be supported in equal measure by discussion of a deal extension.
> Little support to gold as geopolitical threat abates. Gold prices surged to a YTD high of $1,357/oz early on Friday before sharply correcting later in the day, a trend that has continued this morning, with gold trading at around $1,335/oz as we write. This means that prices have dropped by over $20/oz from Friday's YTD high. Safe-haven assets remain driven by North Korean tensions. Accordingly, because no new missile tests were conducted over the weekend, these assets have sold off and are now increasingly exposed to a further correction on profit taking. This is particularly the case for gold, given its massive $135/oz price gain in just two months. At the moment, the US is working to implement new sanctions on North Korea, while Pyongyang is threating to make the US pay if it does. The latter's latest launches have shown that a strike on the US mainland is becoming more realistic. We think that today gold will remain closer to the upper end of its $1,335-1,340/oz trading range, receiving some support from the weaker dollar (for more details, please see today's FX Beat).