Oil Deal Stumbling Blocks Remain

Analisi Giornaliera - 23/11/2016

Headline Optimism on Oil Output Cap Deal Overshadowed by Reluctance

In spite of positive communiques from OPEC about an output cap deal taking shape, there are numerous factors which threaten to derail the deal before it even takes off. Concerns that exemptions requested by Iran and Iraq will be a looming risk that could defeat any agreement saw oil prices retreat from Tuesday highs, trading mostly flat ahead of US inventory data.

OPEC Deal Doubts Remain

While the headlines paint an optimistic picture of the ongoing negotiations to cut output and reduce the crude oil supply glut, tensions remain high ahead of next week’s meeting in Vienna. Although Nigeria and Libya have been allegedly granted exemptions under the terms of the deal, other countries are vying for similar treatment. Iraq in particular has argued that its war against IS requires additional financing that should excuse the country from any production cuts or output freeze. Iran is taking a similar line as it tries to spur a recovery in output to levels that were reached before the implementation of sanctions. In the meantime, inventory data reported by API late in session saw bigger than anticipated gasoline builds, sending oil prices lower after the revelations about the positions of Iran and Iraq.

US Equities Squeeze Higher

The Dow Jones Industrial Average closed above 19,000 for the first time on record. This added to a week filled with optimism as financial markets price in a 100% probability of interest rates rising in December. Besides the new Dow record, the S&P 500 managed to notch its own record heights, climbing above 2,200. The gains were led predominantly be a rally in the telecommunications sector, however, there is a growing sense of concern that the ongoing rally is overextended and overbought. Aside from equities, positive housing data also raised optimism, with existing US home sales rising to the highest point since 2007. Some are considering the move a revival in the housing market while others are attributing the development to the prospect of higher mortgage rates ahead of the December interest rate decision. Indices are trading mostly unchanged as the US Thanksgiving holiday approaches.

Canadian Retail Climbs at Fastest Pace in Months

In another sign that the Canadian economy may be able to avoid a recession, retail spending in the country continued to improve according to reports on Tuesday. The headline monthly retail sales figure rose to 0.60% during the month of September, marking the fastest rate of growth in 5-months. Gains were driven primarily by sales of automobiles and increased spending at gas stations. Stripping away auto sales, the core monthly retail sales data remained flat at 0.00% month over month. However, the data is more pointedly optimistic, especially in light of rising inflation and the benefit of higher energy prices. Although the economy contracted during the second quarter, fiscal stimulus and other tailwinds should help Canada narrowly avoid an economic recession. After rising on the back of a stronger US dollar, the USDCAD pair is mostly unchanged from overnight levels.

Norwegian Joblessness Retreats

The improvement in the backdrop for oil and gas prices has helped the Norwegian economy gain back some lost ground over the last few months, with unemployment falling to the lowest point since June. The jobless rate currently stands at 4.90%, however, weak GDP growth continues to be a concern, with the economy contracting -0.50% during the third quarter. Although inflation remains high, this is largely a function of the softness in the Norwegian Krone. With inflation and employment on the mend, there is the possibility that the Norges Bank will move to raise rates in the coming quarters. Should growth rebound alongside oil and gas prices during the fourth quarter, GDP may be able to swing back into positive territory. In the meantime, USDNOK is higher on the session, climbing back above 8.5300.