OPEC Drama Keeps Oil Under Pressure

Daily Analysis - 29/11/2016

Disagreements Between Cartel Members Reach Fever Pitch

With the Vienna meeting scheduled for tomorrow, OPEC is looking increasingly reluctant to cut output as disputes between members leave the cartel in a deadlock despite a preliminary accord that was reached back in Algeria. Oil prices remain mixed after opening higher and trending lower, evidence of the uncertainty heading into tomorrow’s meeting.

Output Deal Hurdles Remain

With Russia clarifying that it will not attend Wednesday’s meeting in Vienna, the optimism of an oil output cut deal being reached this week are looking increasingly distant. Objections to the deal continue to emanate from both Iran and Iraq, each of which believes they should be exempted from any production cuts or freezes, putting the onus on Gulf nations to fill the gap with deeper output cuts. The current structure of the agreement according to those close to the negotiation is for a 1.200 million barrel per day cut from production levels reported in October. Hurting the likelihood of any pronounced gain in oil prices if a deal is reached is Russia’s abstention from attending talks, instead preferring to wait for the outcome of OPEC’s meeting before deciding on any production cap. In the meantime, Brent is trading just shy of $48.00 per barrel.

Canadian Central Banker Touts Service Sector

Although Canada has endured a rough period of economic activity following the downturn in oil and gas prices, there is one area for optimism according to Bank of Canada Governor Stephen Poloz. During prepared remarks, Poloz emphasized that while there will always be demand for the abundant natural resources that Canada mines, the services sector has only strengthened since the last financial crisis. Employing nearly 80.00% of the eligible workforce, the services sector has been the main driver of economic expansion as the export economy takes a bigger pause. While there has been a major deficit left behind by the resource export market, services are picking up the slack and providing higher average wages than other sectors. After retreating Monday, USDCAD is back on the climb after bouncing off support at 1.3400.

French Economy Showing Tepid Recovery

The upcoming election season has brought the French economy back to the forefront of discussion as the Republican Party takes aim at current President Francois Hollande’s economic failures. Unemployment remains high, still trending at 10.00% while growth is anemic relative to other Euro Area peers and the aggregate expansion. Preliminary gross domestic product figures released earlier showed that the economy expanded by 0.20% during the third quarter, matching expectations and the prior reading. The one silver lining was the consumer spending data which showed a marked uptick. Data reported by INSEE showed that consumption climbed 0.90% during the month of October, beating expectations of 0.40% and the September reading of -0.40%. After a tumultuous fall on Monday, the French CAC 40 is flat on the session as markets digest the latest economic figures.

Japanese Spending Improvement Beckons Better Inflation

In another positive sign for Japan’s uneven economic activity, household spending climbed during the month of October. Although the 0.10% was a steep deceleration from the 2.80% monthly gain reported in September, on an annualized basis, the contraction narrowed from -2.10% to -0.60% in a positive sign for the broader economy. Retail sales also appeared to be at an inflection point, with the annualized figure improving to -1.20% from -1.90% in September. Should spending continue to gain traction, it could be a positive driver for inflation over the coming months, helping the Bank of Japan move the needle towards the targeted 2.00% inflation. After retreating on Monday, EURJPY is back on the climb, erasing nearly half the prior session’s losses and trending near intraday highs.