Commodities. Oil and Gold Daily - September 21, 2017

> Oil prices rise on upbeat sentiment despite a surge in oil stocks. After trading near $55.4/bbl early yesterday, Brent for November delivery climbed about $0.6/bbl by midday in the wake of the EIA weekly report and subsequently gained another $0.3/bbl after the weekly US inventory data was published. It ended the session at $56.29/bbl, up $1.15/bbl on the day. Similar to last week, upbeat sentiment was driving prices, though the IEA report contained both bullish and bearish developments. Notably, the EIA inventory data is becoming less noisy and easier to interpret following the disruption caused by the two recent hurricanes.
US crude inventories surged 4.59 mln bbl to 472.8 mln bbl in the week to September 15, according to the EIA. Oil production has recovered to pre-hurricane levels (rising 0.157 mln bpd to 9.51 mln bpd), though refining inputs are lagging behind (the main factor behind the weekly oil inventory gain) albeit on track to a full recovery (up 1.09 mln bpd to 15.17 mln bpd w-o-w). Pressuring oil inventories was a weekly gain in import volumes, as ports resumed operations, though the total volume of 7.37 mln bpd was 0.7 mln bpd below the 8m17 average and is likely to stay at this level given lower OPEC exports to the US. US oil exports are also recovering and reached 0.93 mln bpd, and they are expected to grow further given the large WTI discount to Brent. Summarizing the data, we can say that US domestic consumption, imports and exports suggest bullish developments down the line, supporting investor sentiment.
Refined product data was also oil price-supportive, with both gasoline and distillate stocks seeing a significant drawdown (by 2.1 mln bbl and 5.7 mln bbl, respectively). Elevated gasoline demand in the US and Latin America is attracting an increasing number of European cargoes, while US export-oriented refineries are also expanding shipments. Distillate stocks are now below the five-year average, and combined with the high gasoline demand, this is likely to force more US refineries to postpone seasonal maintenance this autumn and target high margins. Postponed maintenance could lead to crude inventory draws in October, supporting oil prices.
For today, we think the front-month Brent contract will struggle to hold above $56/bbl given the sharp surge in the dollar yesterday - a move that makes oil more expensive for investors holding other currencies.
> Hawkish Fed induces a safe-haven selloff. The gold price was up around $5/oz to $1,315/oz by midday but started to retreat after the Fed meeting and Yellen's speech, and it is trading at around $1,295/oz this morning. As expected, rates were left on hold, and Yellen strove to emphasize the US economy's healthy performance, with lagging inflation described as a "mystery." We think the downtrend in gold and other safe-haven assets such as the yen was induced by the hawkish surprise from the Fed, which not only retained its forecast for a 25 bp hike by year end but also maintained its projection for three hikes in 2018. A year-end rate hike is definitely now in the cards, an outcome that was regarded as unlikely a couple of months ago. For the rest of the week, we expect gold to retreat to the $1,280-$1,290/oz range under pressure from the stronger dollar (for more details see our latest Russia FX Beat).