OPEC+ Holds Oil Output Steady Ahead of Quiet Week
This time last week we wrote of a decisive period for oil prices. This week we may start to get an idea of what bearing recent events will have on the market.
Yesterday, OPEC+ members met against a backdrop of imminent new measures from the EU and G7 designed to limit Russia’s oil earnings. However, despite invoking the ire of western nations by cutting production at their last meeting in October, this time, OPEC+ decided to hold production steady.
Back to these new measures then, which came into effect today, Monday 5 December. The EU has begun a total ban on all imports of Russian seaborne crude, whilst a G7-imposed price cap of $60 on every barrel of Russian oil has also come into play.
Moscow have already indicated it will not sell its oil under the cap, with Deputy Prime Minister Alexander Novak stating on Sunday that Russia would rather cut production than adhere to selling their oil at a price dictated by the West.
Most likely then OPEC+ have opted for a “wait-and-see” approach, in order to understand the effect of these new measures on the oil market. Furthermore, with China seemingly ready to roll-back Covid restrictions, the demand outlook for oil is likely to change.
We can, therefore, expect oil to be a big talking point in the coming days, and it will be interesting to see how everything plays out in the market. So, what else is happening this week?
US Crude Oil Inventories
The first full week of December is set to be a relatively quiet one as far as key economic events go. However, continuing our crude oil theme, oil traders will want to pay attention to the US crude oil inventories update on Wednesday.
This weekly indicator measures the change in crude oil barrels held by US companies, which can be telling about demand for oil products in the US.
If oil inventories deplete more than expected, or rise less than expected, it suggests strong demand for oil products. However, if inventories rise, or fall less than expected, it indicates weak demand. Either outcome can have a knock-on effect on oil prices.
Last week, these oil stocks plunged by almost 13 million barrels, far more than anticipated, contributing to oil prices rising on the day. This week, oil inventories are expected to drop by around 2.8 million barrels.
ECB President Lagarde Speeches
Following Fed Chair Jerome Powell’s speech last week, the Federal Reserve policy makers have entered their blackout period in the build up to their last policy meeting of 2022, in which they are expected to raise rates by 50 basis points.
On Thursday, eyes will turn across the Atlantic to Europe, where European Central Bank (ECB) President Christine Lagarde is scheduled to make two speeches ahead of the ECB’s own blackout period.
The ECB’s next policy meeting is set for 15 December, and, after eurozone inflation fell by more than expected last week, the markets are currently expecting a 50 basis point increase. However, investors will be scrutinising both speeches for any fresh hints as to how the ECB will act next week.
Expect European stocks and currency pairs involving the euro to be volatile around the times Lagarde is scheduled to appear.
US Producer Price Index (PPI)
Switching attention back across the Atlantic, on Friday, the Bureau of Labor Statistics will release their latest Producer Price Index (PPI) data for November.
Unlike the Consumer Price Index (CPI), the PPI, as the name suggests, tracks inflation from the point of view of good-producing businesses. PPI is considered to be an indicator as to the future trajectory of CPI, owing to the fact that increases in production prices are usually passed onto the consumer where possible.
Consequently, lower PPI readings can be interpreted as a precursor to lower CPI readings in the coming months. Conversely, higher PPI readings can be interpreted in the opposite manner.
On Friday, PPI is expected to have risen 0.2% on a monthly basis for the third month running, whilst, on an annual basis, the index is expected to have slowed to 7.2%, compared to 8% the previous month.
Remember, the announcement of economic data often causes an increase in market volatility around the time of release. Therefore, traders and investors should keep track of major events and exercise increased caution if planning to trade or invest around these times.
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.
