Commodities. Oil and Gold Daily - September 18, 2017

> Oil prices gain support from rig data; EIA productivity report eyed. After sliding to an intraday low of $54.9/bbl early on Friday, Brent for November delivery quickly recovered and eventually settled at $55.62/bbl, up $0.15/bbl on the day. On Friday evening, prices gained support from the weekly Baker Hughes count of active oil rigs in the US, which showed a seven-unit decrease w-o-w to 749. This came after a three-unit decrease the week before. As we wrote on Friday, rig data rarely has a strong impact on prices, although its trends give a feel for future production.
Today, the market will focus on the EIA drilling productivity report, due at 21:00 Moscow time. It will include the agency's forecast for shale production growth in October. Last month, the agency said it expected US tight oil production to increase sharply in September, by 0.117 mln bpd m-o-m to 6.15 mln bpd. We think that today's report will likely show a more subdued expected m-o-m increase in October, but an increase nonetheless, which could support prices until US inventory data comes out midweek. In our view, prices will rise if the production growth is expected at below 0.1 mln bpd. The pace of rig additions started decelerating back in April (and, since mid-August, the rig count has actually decreased). Since there is a lag of around five months from when a rig is added and when its production begins to show up in production data, the EIA should start moderating its month-ahead forecasts. Moving forward, lower than expected output could force leading voices in the market like the EIA to revise downward their current forecasts, which, in turn, would support prices.
> Gold retreats as investors prepare for Fed meeting. After a short-lived surge early on Friday to near $1,335/oz, spurred by another North Korean missile test, gold prices started to retreat and are trading near $1,315/oz this morning. The outflow from gold came despite disappointing US retails sales and industrial production data for August. Retail sales were down 0.2% m-o-m (versus expectations of a 0.1% increase), while industrial production slid 0.9% m-o-m (versus expectations of a 0.1% increase), both influenced by Hurricane Harvey. These trends are capable of undermining 3Q17 economic growth. US Treasury yields strengthened on Friday, which pressured gold, as investors prepare for Wednesday's Fed decision. Market players are widely expecting and pricing in an announcement on plans to reduce the balance sheet. Even though a rate hike is not in the cards at this meeting, the recent pickup in inflation will likely give policymakers enough basis to become more hawkish.
CFTC data for the week to September 12 indicated that hedge funds had continued to add to their long positions in gold, for the ninth week in a row, while keeping shorts at near negligible levels. The ratio of long to short positions currently stands at an unprecedented 20.8 to1, which is nearly double the previous high of 13.2 to 1, which was seen last September. As history has shown, such a severe skew leaves gold vulnerable to a sharp correction on profit taking (for example, it plunged by $80/oz late last September). Barring an escalation in North Korea-related tension, the Fed meeting may end up being a significant trigger for gold to retreat below $1,300/oz this week.