Commodities. Oil and Gold Daily - September 28, 2017

> Oil prices down on EIA-reported draw in oil stocks. After trading near $58.7/bbl early in the day yesterday, Brent for November delivery slid about $0.5/bbl toward midday ahead of the EIA weekly inventory report and then lost another $0.3/bbl after the report was published. It ended the day at $57.9/bbl, down $0.54/bbl. As we had expected, recent bullish momentum has further eased on the latest inventory data. Still, by no means is the fundamentally strong undercurrent driven by global market rebalancing at risk of being undermined to the extent that we expect a strong price correction. As is typical, the IEA reported both bullish and bearish developments, none of which were strong enough to drive prices in one direction decisively yesterday.
Last week, US crude inventories, as reported by the EIA, surprisingly fell 1.8 mln bbl w-o-w to 470.1 mln bbl, diverging with the Bloomberg median estimate of a 3.1 mln bbl increase. Oil production has climbed back above pre-hurricane levels, rising 0.037 mln bpd w-o-w to nearly 9.55 mln bpd. Meanwhile, refining inputs (which had been lagging behind) posted another strong w-o-w gain of 1 mln bpd to 16.17 mln bpd, though that is still 1.53 mln bpd behind the 17.7 mln bpd pre-hurricane rate. The pickup in refining inputs and a surge in exports, which reached a historical high of 1.49 mln bpd (induced by a wide Brent/WTI spread that made US oil more attractive globally), drove the decrease in oil inventories. At the moment, we do not expect strong crude inventory declines in October amid the strong oil production growth and given that major refineries located in Port Arthur are still having trouble restarting. For strong inventory draws to materialize, US export levels would need to keep breaking historical highs, which would provide an upside surprise to investors and possibly rebalance the US market (the only major one that is still in surplus). Only after such a rebalancing could Brent stabilize above $60/bbl, in our view.
Refined product data left some positive impressions, with gasoline inventories rising 1.1 mln bbl thanks to a w-o-w surge in imports and demand's remaining strong. Weekly draws in distillate inventories eased. Distillate stocks fell just 0.8 mln (last week they were down 5.7 mln bpd) amid falling demand, continuing to stay below their five-year average. This, combined with the high gasoline demand and good refining margins, should incentivize US refineries to run at high rates counter-seasonally. By week end, we see Brent slowly correcting toward, and then stabilizing in, a $56-57/bbl range.
> Gold retreats as proposed US tax reforms drive dollar higher. The gold price has continued its descent. It has lost almost $15/oz in the last 24 hours and is currently hovering just above $1,280/oz. The unveiling of US President Donald Trump's long-awaited proposal for overhauling the US tax system pressured the yellow metal through a pickup in the dollar. The plan calls for taxes to be reduced for most Americans in order to induce economic growth. The proposal is certain to face stiff opposition in Congress and could suffer serious setbacks early on, as was the case with proposed healthcare legislation. If Trump fails to deliver again, this could further undermine his ability to follow through on his campaign promises, generating another wave of pressure on the dollar. This would be positive for gold, which usually benefits from political turmoil and uncertainty. Today investors will be focused on a raft of data from the US, including the final 2Q GDP growth estimate, which is expected to be unchanged at 3% Q-o-Q, personal consumption and weekly jobless claims (all at 15:30 Moscow time). In our view, these releases are not likely to move the dollar in either direction. We expect gold to end the day within a $1,280-1,285/oz range.