OPEC and its partners’ production cuts haven’t given oil prices the necessary impetus yet. The market needs unambiguous signals from supply or demand side, so OPEC’s Secretary General Mohammed Barkindo called on US shale firms to curtail output, offering cooperation instead of competition. According to his remarks, special measures might be needed next year to maintain a deficit or at least a balance in the oil market in the long term.
But who will try to save the drowning enemy? While the cartel and Russia are working to cut production and supplies, the US producers are taking advantage of the retreat, with their production rising by 10 percent this year. The increase has been driven mostly by shale firms that employ a flexible production model with low susceptibility to strong price fluctuations. The goal of OPEC is to reduce inventories in industrialized consumer countries to an average of five years.
World demand should grow by 1.45 million barrels in 2017 and remain at 1.4M barrels in 2018. The special measures mentioned by Barkindo might imply a larger reduction in production or an extension of the existing pact, as production may grow next year thanks to the comeback of Venezuela, Mexico and other countries.
The WTI rose to $50.02, showing uncertainty about the future direction. Markets are waiting for more frankness from OPEC, regarding further reduction in supplies.
Sterling continued to strengthen after Prime Minister May’s promises of a government reshuffle to tighten control of power in their hands. Besides a revived fight in the political arena, the news came out about the growth of industrial production in the UK, which will allow the Bank of England to raise the rate in November without glancing back on economy issues. The reading rose by 0.4% in August, beyond the 0.2% projection. The GBPUSD pair is fighting for the level of 1.32, while market sentiment remains positive.
The European currency reached a one-week high due to a growth of long positions on ECB official’s optimism that the outlook of the economy pickup seems to be robust. However, in the last few days, the rise of the euro was hampered by political concerns, including the Catalan crisis, which compelled investors to reduce their positions in Spanish assets. On Tuesday, EURUSD launched the offensive by imposing a fight for the level of 1.18, after a statement by a member of the ECB Executive Board, Lautenschlaeger, that in 2018 the regulator’s policy should be based on tightening monetary supply.