OPEC and Russia Play Ball

Daily Analysis - 03/12/2017

Oil Prices Spike on Output Cut Extension

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Defying skeptics, OPEC, Russia and nine other major oil producers agreed on Thursday to extend a deal to cap supply through the end of 2018. Investors cheered the news, sending the Brent benchmark soaring close to 2.00% to last trade just below a November peak of $64.65 per barrel that marked the highest level hit since June 2015.

Last Week


Oil prices slipped throughout much of last week amid market concerns over Russia's commitment to the production cuts agreement. Those apprehensions were set to rest after OPEC’s de facto leader Saudi Arabia and Russia reached a compromise in Vienna to continue slashing output by 1.80 million barrels-per-day until the end of 2018, with a review of the progress slated for the cartel’s next regular meeting in June. The other major news that grabbed headlines late last week was the approval of a historic tax overhaul by the US Senate. The Tax Cuts and Jobs Act will be the largest tax revamp in the country since 1986, adding $1.40 trillion over the next 10 years to the US budget deficit.

In Brexit news, the UK and the European Union have reportedly agreed on a divorce bill, with media estimates of what the final figure will look like varying between €40 billion and €55 billion. On the economic data front, the Euro Area Manufacturing PMI surged to 60.1 in December, the second highest reading on record, signalling that the sector has fully recovered from a sharp contraction triggered by the region’s 2011 debt crisis. Adding to the bullish outlook for the currency bloc was a separate report that showed the unemployment rate dipping to 8.80% in October, the lowest level since January of 2009.

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The Week Ahead


In the upcoming week, investor attention will be primarily focused on two central themes - the progress of Brexit talks and the health of the US jobs market. On Monday, UK Premier Theresa May is scheduled to meet European Commission President Jean-Claude Juncker and the EU’s chief negotiator, Michel Barnier. Brussels has directed May to table a “final offer” on Monday to end the first phase of talks, with subsequent progress dependent on agreement of the divorce terms that include a financial settlement and clarity on rights for EU citizens.

Friday will see the release of the final US Nonfarm Payrolls report ahead of the Federal Reserve’s monetary policy meeting scheduled for the following week. Whilst an interest rate increase is all but a certainty, the monthly jobs data will be monitored as closely as ever. An early survey of economists has forecast November payrolls to have increased by 188,000, while the jobless rate is expected to claw back up from a 17-year trough to 4.20%. Meanwhile, average hourly earnings are projected to have gained 0.20% month-on-month. The Bank of Canada is widely tipped to leave its benchmark overnight rate steady at 1.00% when it delivers its latest policy decision on Wednesday. The uptick in the labour fundamentals could however prompt Governor Stephen Poloz to offer a more upbeat view of the economy.

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