Commodities. Oil and Gold Daily - September 26, 2017

> Oil prices surge on market rebalancing aided by global outages... After trading near $56.8/bbl early yesterday, Brent for November delivery started to climb and eventually settled at $59.02/bbl, up $2.16/bbl on the day. At the start of the year, Brent's surge to $57/bbl was speculative and based purely upon expectations of a market deficit, whereas this time around demand is clearly prevailing over supply and providing fundamental support. The current market conditions make it very difficult to envisage a sustained retreat below $55/bbl, in our view. A number of planned and unplanned upstream outages are supporting the market rebalancing. According to Energy Aspects, these outages have been rising for three months in a row and have reached a five-month high of 1.85 mln bpd this month, albeit this is still below last year's average of 2.4 mln bpd. The shift in the Brent futures curve from the contango seen at the start of 3Q17 to backwardation through much of September is one of the key themes on the market right now and reflects the shift toward rebalancing and the rise in global outages. The outages are coming from across the globe, including the North Sea, Brazil, Iran, Kazakhstan, Colombia, China, Libya and Venezuela.
> ...and Turkish threat to block Kurdish crude exports. Large price moves are usually the result of a combination of many factors, and the latest is no exemption. Yesterday, geopolitical uncertainty in Middle East was ratcheted up by Turkish President Erdogan, who threatened to block Kurdish oil exports via the 0.6 mln bpd Ceyhan pipeline in an attempt to stop yesterday's Kurdish independence referendum. Given the aggressive tone of Erdogan's statement, which included threats to invade Iraq (which on Sunday asked other countries to stop buying oil from Kurdistan), we think a pipeline blockade is definitely in the cards. This would add to the global outage levels we described above and could even take Brent above the $60/bbl level over the next couple of weeks. We expect Brent to retreat from its current highs and consolidate within the $57-58/bbl range over the next couple of days.
> Gold surges as North Korean conflict escalates. Yesterday's dollar strength and declining 10y US Treasury yields implied that gold should have found equilibrium at around the $1,295/oz mark, as it did early in the day. However, gold prices surged almost $20/oz around midday and pushed above $1,310/oz, a surge that was also apparent in other safe-haven instruments such as the yen. The move was prompted by comments by North Korea's foreign minister, who described a tweet by US President Trump as a declaration of war on his country, a move that gives Pyongyang the right to take countermeasures, including "the right to shoot down US strategic bombers even when they are not inside the airspace border of our country." We expect this latest bout of risk-off trading to ease today, and we see gold consolidating within the $1,305-1,300/oz range.