Commodities. Oil and Gold Daily - September 27, 2017

> API data suggests end to crude builds, giving short-term support to prices. After advancing a strong $2.5/bbl on Monday, Brent for November delivery slid throughout the day yesterday on profit taking. It eventually settled at $58.44/bbl, down $0.58/bbl on the day. Post-settlement, Brent has gained almost $0.3/bbl on the API release, which showed that US crude stocks had fallen 0.76 mln bbl to 469.5 mln bbl in the week to September 22, diverging with the median of estimates given in a Bloomberg survey of a 3.1 mln bbl increase. The data also showed a massive w-o-w increase of 1.3 mln bpd in crude refinery runs, a rather bullish development given that, last week, refining inputs had significantly lagged the recovery in crude production after both had been disrupted by Hurricane Harvey. Note that, despite the good progress made in September, with offline refining capacity falling from 3.36 mln bpd at the start of the month to around 1 mln bpd currently, major refineries located in Port Arthur are still having trouble restarting, leaving the possibility of crude inventory gains in October alive.
Refined product data was mixed. Gasoline inventories rose 1.3 mln bbl, which could point to the inability of end-user demand to keep up with the rapid increase in production (the Bloomberg survey's median estimate was a 0.75 mln bbl w-o-w decrease). Distillate stock data, on the other hand, was rather bullish, showing a very strong 4.5 mln bbl draw, which exceeded the Bloomberg survey's median estimate of a 2 mln bbl w-o-w decrease. The EIA's inventory report will be released today at 17:30 Moscow time and is also likely to show that US refineries have rather quickly brought operations back to normal levels after the hurricane. We, however, do not think that a draw in crude stocks, as was reported by the API, is a given; rather, we expect them to increase w-o-w in line with market expectations, which may pressure prices. In any case, bullish momentum, if any, is not likely to be strong, and gasoline inventories likely rose, which would add more pressure. Still, the strong bullish undercurrent that is being driven by global market rebalancing is unlikely to be undermined. We see Brent retreating slightly to a range of $57-58/bbl by the end of the day.
> Hawkish Fed comments force gold lower. After surging by about $20/oz on Monday on comments by North Korea's foreign minister (who called a tweet by US President Donald Trump a declaration of war), gold prices have started to slide. As of this morning, they had already lost that $20/oz and were hovering just above $1,290/oz. Yesterday, they came under pressure after Fed Chair Janet Yellen unveiled, or rather confirmed, the bank's plans to move forward with gradual rate hikes, despite subdued inflation that has remained below the Fed's 2% target. She justified gradual rate hikes, arguing that an overheated labor market could potentially create an inflationary problem that could trigger a recession. The recently voiced clarity in the Fed's strategy is a very bearish development for gold. This year, investors had been uncertain over what the Fed would do next given the low inflation. After Yellen's latest comments, the Fed's rates outlook (which has one more hike penciled in for this year and three for next year) will exert strong pressure on gold and also send a strong signal to other Western central banks to tighten monetary policy. We expect gold's losses to continue and see it consolidating within a $1,285-1,295/oz range.