Commodities. Oil and Gold Daily - September 19, 2017

> Brent, riding momentum, keeps battling key resistance at $56/bbl. Brent for November delivery peaked at $55.93/bbl midday yesterday before it started to slide. After touching an intraday low of $54.84/bbl later, it recovered to settle at $55.48/bbl, down $0.14/bbl on the day. Oil prices continue to enjoy global momentum. Yesterday, market players were mostly focused on the US, where the refining industry continues to recover from Hurricane Harvey. The latest Bloomberg data shows that 1.6 mln bpd of total US refining capacity remains offline, down from 3.15 mln bpd a week ago. This portends a slowdown in the swelling of crude inventories, which should be reflected in the data that will be released by the API today (23:00 Moscow time) and the EIA tomorrow (17:30). Yesterday, in its latest drilling report, the EIA said that it expected US tight oil production to increase in October, but, as we had expected, it started to moderate its month-ahead forecasts. It revised downward its previous September tight oil output projection from 6.15 mln bpd to 6 mln bpd and estimated the m-o-m rise in October production at 0.08 mln bpd to 6.08 mln bpd (total US production stands at 9.35 mln bpd, according to the September 13 EIA inventory report).
We see the refining recovery and moderating oil production outlook as bullish developments. They have both defied the market's previous, and rather bearish, expectations. It had been projected that it would take months for the US refining sector and US crude demand to recover, but, as soon as next week, inventory data could show a refining intake closer to 17 mln bpd, which would be significantly higher than the currently depressed 14 mln bpd rate. This year, the EIA had continuously forecasted US m-o-m shale production growth higher than 0.1 mln bpd; now that the pace has moderated, we think that it will exert less pressure on prices. As always, though, inventory data can bring surprises, and a larger than expected build in crude stocks would force prices lower. Still, we think that Brent will break resistance of $56/bbl at some point this week, drawing on support from the meeting of OPEC+ ministers in Vienna on Friday.
> Selling pressure builds on gold, but downward trend may soon end. Gold prices continue to slide, having already lost almost $30/oz since the last North Korean missile launch on Friday. If gold prices fell on strengthening US Treasury yields amid a weakening DXY Index on Friday, they retreated yesterday as the US dollar pared losses amid relatively flat yields on long-dated Treasuries. This implies that safe-haven assets are currently under strong selling pressure, with money flowing to riskier assets. We think that investors should be careful and not get carried away with gold's consistent weakness, given the beginning of the Fed's two-day meeting today and the announcement of its rates decision tomorrow at 21:00 Moscow time. Our FX analysts think that the Fed will keep to its forecast of one hike before year end but reduce its forecast from three to two hikes for 2018. In addition, they emphasize that the risk is of a much more dovish Fed, which would weigh heavily on the dollar and could lead to a rebound in gold prices, as has already happened on a number of occasions this year. We think that gold will retreat closer to $1,300/oz ahead of tomorrow's decision, with a rebound after the meeting being a strong possibility.