OPEC made a deal to hike production by 1 million barrels – and included Russia; Emerging Market election season begins with Turkey; European service growth beat expectations for June; U.S. tax revenue from its metals tariffs netted nearly $800 million so far; the costs have yet to be tallied.
BROPEC The 14-member global oil cartel meeting concluded on Friday with unofficial statements from participant oil ministers that the world’s major producers, including Russia, were now agreeing to boost global crude oil production by 1 million barrels (bbl) per day in the second half of 2018. The agreement reduced prices somewhat in the spot crude markets; Brent crude spot traded at $74.36/bbl, down from May’s high of $79.80; West Texas Intermediate spot priced at $67.80, down from $72.24 in May.
The stated rationale for the increase was to reduce the global supply/demand imbalance, caused in part by some exporters’ inability to meet their minimum quotas. Iran’s Oil Minister appeared to have trouble with the result at first, storming out of an earlier session. Other participants suggested the disagreement was about the appearance that OPEC and its allies were acceding to the U.S. demand earlier this year that production increase by 1 million bbl/day.
In the end, the post-meeting communique omitted this figure – but Saudi Oil Minister Khalid Al-Falih showed no reluctance to promote the million-barrel figure.
That objective could yet remain unmet. Venezuela and certain other producers continue to experience dwindling production capability, and the transportation bottleneck for U.S. shale oil from the Permian basin will be difficult to resolve in the short term.
Emerging Markets: Election Seasons EM investors could find additional bargains in the rest of 2018; general elections in Turkey, Indonesia, Mexico, Pakistan, Brazil, Taiwan – along with two state elections in India – could generate the kind of volatility that bargain-hunters favor. Next year, Thailand, Nigeria, Ukraine, South Africa and Israel will join the electoral roller coaster. And the list doesn’t include any of the possible election opportunities brought on by parliamentary votes of no-confidence over the next 18 months.
EU: Solid Surprise from Services Some noteworthy and welcome news for the Eurozone, given the sudden onset of gloom in recent weeks: preliminary PMIs for June showed continued expansion. Composite PMI came in at a higher-than-expected 54.8, largely due to the Services component scoring a solid 55.0 vs. the expected 53.8 (figures above 50 indicate growth; below 50, contraction). Since services may be less susceptible to tariffs than trade in goods; this could augur well for the balance of the year while the current trade conflicts evolve.
U.S. A Taxing Result According to the Commerce Department, the tariffs on steel and aluminum imposed in March have generated $582 million and $195 million respectively as of the week ended June 15, with the combined total expected to top $1 billion within the next six weeks.
Companies can win exclusions from these tariffs after requests are posted on line for 30 days under certain conditions; as of Monday June 18th, 22,500 for steel and aluminum have been posted. Commerce Secretary Ross announced on Wednesday June 20 that 42 steel requests had been granted to seven companies importing steel from Japan, Sweden, Belgium, Germany and China. Fifty-six requests from 11 different companies were rejected.
All market-related data Source: Bloomberg, June 22, 2018 unless otherwise stated
The Organization of the Petroleum Exporting Countries (OPEC) is a permanent intergovernmental organization of 14 oil-exporting developing nations that coordinates and unifies the petroleum policies of its member countries.
West Texas Intermediate (WTI), also known as Texas light sweet, is a grade of crude oil used as a benchmark in oil pricing. This grade is described as light because of its relatively low density, and sweet because of its low sulfur content. It is the underlying commodity of Chicago Mercantile Exchange's oil futures contracts.
Brent Crude Oil is a major trading classification of sweet light crude oil that serves as a major benchmark price for purchases of oil worldwide. This grade is described as light because of its relatively low density, and sweet because of its low sulfur content. Brent Crude is extracted from the North Sea and comprises Brent Blend, Forties Blend, Oseberg and Ekofisk crudes.
Purchasing Managers Indexes (PMI) measure the manufacturing and services sectors in an economy, based on survey data collected from a representative panel of manufacturing and services firms.