Everyone from U.S. President Donald Trump to those of us who curse the cost of filling up hope OPEC producers will agree to ease up at a key meeting this week.
Observers believe the Organization of the Petroleum Exporting Countries will take at least some baby steps when it meets in Vienna on Friday, pushed along by Saudi Arabia and Russia, which isn’t an OPEC member but is part of a production cap agreement that has buoyed oil prices.
Saudi Arabia and Russia are key players here, and both are looking at the possibility of loosening the agreement, which is set to run through the end of the year.
Mr. Trump took to Twitter again recently, calling for OPEC to open the taps and help bring down high prices at the gas pump.
RETAIL GASOLINE PRICE MOVEMENTS
Indexed, June 2017=1
1.7
Brent
Germany
U.S.
France
Japan
Spain
Canada
Italy
Britain
1.5
1.3
1.1
0.9
F
M
A
M
J
2017
J
A
S
O
N
D
J
2018
GLOBAL OIL DEMAND
Yearly averages, in million barrels per day
2017
2018
2019
Africa
Americas
Asia/Pacific
Europe
FSU*
Middle East
World
Annual change
* Former Soviet Union countries
4.3
31.4
33.9
15.1
4.7
8.3
97.8
1.6
4.4
31.7
34.6
15.2
4.8
8.4
99.1
1.4
4.5
32
35.4
15.3
4.9
8.5
100.6
1.4
THE GLOBE AND MAIL,
SOURCE: INTERNATIONAL ENERGY AGENCY
RETAIL GASOLINE PRICE MOVEMENTS
Indexed, June 2017=1
1.7
Brent
Germany
U.S.
France
Japan
Spain
Canada
Italy
Britain
1.5
1.3
1.1
0.9
F
M
A
M
J
2017
J
A
S
O
N
D
J
2018
GLOBAL OIL DEMAND
Yearly averages, in million barrels per day
2017
2018
2019
Africa
Americas
Asia/Pacific
Europe
FSU*
Middle East
World
Annual change
* Former Soviet Union countries
4.3
31.4
33.9
15.1
4.7
8.3
97.8
1.6
4.4
31.7
34.6
15.2
4.8
8.4
99.1
1.4
4.5
32
35.4
15.3
4.9
8.5
100.6
1.4
THE GLOBE AND MAIL, SOURCE: INTERNATIONAL ENERGY AGENCY
RETAIL GASOLINE PRICE MOVEMENTS
Indexed, June 2017=1
1.7
Brent
Germany
U.S.
France
Japan
Spain
Canada
Italy
Britain
1.5
1.3
1.1
0.9
F
M
A
M
J
2017
J
A
S
O
N
D
J
2018
GLOBAL OIL DEMAND
Yearly averages, in million barrels per day
2017
2018
2019
Africa
Americas
Asia/Pacific
Europe
FSU*
Middle East
World
Annual change
* Former Soviet Union countries
4.3
31.4
33.9
15.1
4.7
8.3
97.8
1.6
4.4
31.7
34.6
15.2
4.8
8.4
99.1
1.4
4.5
32
35.4
15.3
4.9
8.5
100.6
1.4
THE GLOBE AND MAIL, SOURCE: INTERNATIONAL ENERGY AGENCY
“OPEC is under pressure to release barrels, given the risk of overtightening and higher oil prices on sustained demand growth,” said John Normand of JPMorgan Chase, which expects a production boost.
“There is also the additional risk that the U.S. and [International Energy Agency] could release oil from their strategic reserves if they were to deem current market tightness due to market disruption,” he added. “Given Saudi Arabia and Russia have currently the control over oil markets, it would be counterintuitive for them to lose it by not reacting in advance to market tightening due to unplanned declines in Venezuela, Angola and potentially Iran due to sanctions.”
Mr. Normand also cited the “several cracks” in the production pact as dynamics changed, noting “the deal is waiting to collapse.”
Royal Bank of Canada analysts also expect an output boost, albeit a soft one.
“Our base case is that Saudi Arabia and the OPEC leadership will err on the side of caution and orchestrate a modest easing of the output cut (up to 500,000 barrels per day, in our view) and strongly signal a readiness to act quickly to fill serious supply gaps as needed, by potentially convening an extraordinary meeting in the fall,” said Helima Croft, RBC’s global head of commodity strategy, and her colleagues Christopher Louney and Michael Tran.
“In addition, Saudi Arabia and OPEC leadership will likely reaffirm their overall commitment to the collective production agreement in order to incentivize further investment in the energy sector,” they added in a preview of the meeting.
“Nonetheless, we could envision a scenario where the meeting proves to be so antagonistic because of deep divisions over production and sanctions that they fail to reach a consensus, leaving big producers like Saudi Arabia and Russia to act on their own.”
But even that would result in a soft production boost “as no one wants to cause another collapse in oil prices.”
By coincidence, as OPEC meets we’ll also get to see how much more we’re paying for higher prices when Statistics Canada releases its May inflation report.
Observers expect to see that consumer prices rose 0.4 per cent last month, pushing the annual inflation rate to a six-year high of 2.6 per cent.
“Energy prices continued to march higher in the month, with gasoline up about 3 per cent, though there’s been some retreat in the first half of June,” said Benjamin Reitzes, Bank of Montreal’s Canadian rates and macro strategist.
Read more
- IEA sees tight global oil market, higher prices into next year
- In the oil game, play Trump’s Tweets, not the market
The rest of the calendar:
MONDAY: STOCKS
The week opens on a gentle note, with little on the economic front. But watch for how stocks react to the continuing disputes between the United States and its trading partners after the Trump administration hit China with stiff tariffs on US$50-billion in goods on Friday.
Read more
TUESDAY: HOUSING
Another gentle day, although markets will have May U.S. housing starts to digest. Economists expect to see a rise of 2.2 per cent at an annual pace.
WEDNESDAY: TRADE
Here’s where we pick up a bit of steam, with a report expected to show that the U.S. current account deficit fattened further in the first quarter to about US$129-billion, handing Mr. Trump more fuel for his trade fire.
Federal Reserve Board Chairman Jerome Powell chairs an open meeting in Washington on June 14, 2018.Cliff Owen/The Associated Press
Markets will also be watching for what Federal Reserve chief Jerome Powell and others have to say at a chat in Portugal in the wake of the U.S. central bank’s rate hike last week.
He’s speaking at an annual European Central Bank conference.
THURSDAY: RATES
A rate decision by Governor Mark Carney’s Bank of England won’t be nearly as exciting as last week’s meetings of the Fed and ECB, the latter unveiling plans to wind down its stimulus.
Bank of England Governor Mark Carney.BEN NELMS/Reuters
Observers expect the central bank to hold its key rate at 0.5 per cent and make no changes to its asset-buying program.
“The outlook issued by the BoE last month was a little subdued, as the growth forecasts for 2018 and 2019 were lowered,” CMC Markets analyst David Madden said. “The latest average earnings showed a cooling in the growth rate, and this is likely to play on central bankers’ minds, as they would prefer to see firmer wages before raising rates again.”
Read more
- Economies in recovery, central banks now face a tricky task - weaning them off stimulus
- Europe’s easy-money era coming to an end
FRIDAY: BLACKBERRY
Hey, remember when BlackBerry ruled the world?
Besides the OPEC gathering, the Canadian company that gave the world the smartphone reports first-quarter results before markets open.
“Despite BlackBerry progressing in its turnaround, the shares have experienced volatility around quarterly results,” said RBC equities analyst Paul Treiber, whose price target on the stock is US$11 and who expects to see adjusted earnings per share of zero, down from 5 US cents in the fourth quarter.
And along with Statscan’s inflation report comes a look at April retail sales. Don’t expect to see much change from March.
“Retail sales grew a whopping 7 per cent last year, but the days of such heady readings are now clearly in the rearview mirror,” Royce Mendes of CIBC World Markets said.
“During the first quarter of 2018, retail sales shrank at an annualized pace of 1.5 per cent. While Q1 did end on a positive note, it doesn’t look like that momentum carried over into April.”