Oil Alliance Enters New Phase

Daily Analysis - 01/12/2017

OPEC and Russia Agree to Extend Output Cuts

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The Organization of Petroleum Exporting Countries (OPEC) and other major oil exporters, most notably Russia, brushed aside their differences and agreed on Thursday to extend a deal to curb production through 2018. The latest agreement signals a continuation of policies intended to reduce stockpiles that has led to a significant jump in crude oil prices over the past year.

Crude Futures Climb as Vienna Concludes


After a day of talks in Vienna, OPEC and non-OPEC producers led by Russia decided to prolong their -1.80 million barrels a day output reduction for an additional duration of nine months, extending a deal that was due to expire in March. The decision confounded oil analysts, who had expected Moscow to be more insistent on a shorter pact amid fears of a ramp-up in production by US shale operators. Saudi Oil Minister Khalid al-Falih said the group would review the progress of the deal at its next meeting in June, with the option to exit early if the market overheated. West Texas Intermediate crude futures for January delivery are gaining early Friday to last trade around the $57.65-zone per barrel. Since the agreement came in to force a year ago, global inventories have slipped, helping crude prices rally by more than $20.00 a barrel.

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US Consumer Spending Eases, Inflation Firms


Consumer spending in the United States cooled in October as the post-hurricane stimulus from auto purchases waned, while a protracted rise in underlying price pressures indicated that the recent disinflationary trajectory might have run its course. The Commerce Department said on Thursday that consumer spending, which contributes over two-thirds to US economic activity, edged 0.30% higher in October after jumping 0.90% in September. The deceleration was largely on account of a steep fall in spending on long-lasting goods like motor vehicles, which dropped -0.10% after soaring 2.90% in September. The Commerce Department report also showed that the Federal Reserve’s preferred inflation gauge, the Core Personal Consumption Expenditures (PCE) index, increased by 1.40% in the 12 months to October, mirroring September’s advance. S&P 500 futures closed at a fresh record of 2642 on Thursday, with the index lengthening gains in early Friday trade.

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Swiss Economy Clocks Broad Recovery


A pick-up in manufacturing and exports saw Switzerland’s economy post a sharp rebound in the third quarter.  Data compiled by the State Secretariat for Economic Affairs showed that gross domestic product expanded 0.60% for the third quarter on a quarterly basis from an upwardly revised 0.40% reported a period earlier. On a yearly basis, the economy grew 1.20% during the third quarter, accelerating from the 0.50% pace recorded prior, topping forecasts calling for a 0.90% annualized growth rate. The latest bullish GDP print should reinforce the view that the Swiss economy is gradually recovering from the troughs hit after the country’s Central Bank removed its 1.2000 peg for the Franc against the Euro almost three years ago, which sent the safe-haven Franc rallying and hampered Switzerland’s export-driven economy. CHFJPY soared to a two-week high following the release of the figures, with the pair last seen hovering around 114.500.

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German Labour Market Retains Strength


The German unemployment rate fell in November as Europe’s biggest economy continued to generate new jobs despite the political turmoil in the country.  A Thursday report published by the Federal Labor Agency expressed that the jobless rate slipped to 5.30% last month from 5.40% in October, with the number of people listed as unemployed standing at 2.37 million, a -20,000 drop from the prior month. On a seasonally adjusted basis, the unemployment rate remained unchanged at 5.60%, while the jobless total decreased by -18,000 to 2.47 million in November, a much bigger decline than the -10,000 estimated by a consensus of economists. The continued strength in Germany's labour market comes amid the recent upswing in economic activity, with the growth rate surging from 0.60% during the first quarter to 0.80% in the three months through September. DAX 30 futures sharply reversed from Thursday’s highs to trend just above 13050.

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