Crude prices all as OPEC rises oil supply forecast

Crude oil prices tumbled during the Asian session after OPEC revised its non-OPEC oil supply forecast for 2018 to the upside. The price of WTI fell by 1.40% to $62.85 a barrel before stabilising above the $63 threshold. The price of Brent followed a similar pattern as it slid to $68.30 before consolidating a few cents higher. In its monthly market report, the oil cartel expects non-OPEC supply growth to reach 1.15 million barrels per day – this is an upward revision of 160k barrels per day compared to previous estimates. This increase in forecast in mostly driven by higher growth expectations for the US and Canada.

On Thursday, the EIA reported that US inventories contracted by 6.9 million barrels from the previous week, while market participants were expecting a smaller decrease of 3.1 million barrels. US stockpiles have been shrinking continuously since April 2017, falling to 413 million barrels compared to 536 million. Yesterday’s surprise reduction was of little help in boosting oil prices, as speculators are already long crude oil (net long non-commercial positions topped 25% of total open interest, according to the CFTC).

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Against the backdrop of higher growth production and faltering demand, the oil outlook remains quite cloudy. The price of black gold has enjoyed a nice ride since last summer as OPEC members trimmed down production. Even though we are not ahead of a massive correction, we believe that the upside is quite limited.

The Bank of Canada confirms its rate hike despite NAFTA Trade Agreement uncertainties

The Bank of Canada’s Governing Council confirmed an increase of its overnight interest rate on Wednesday of 25 bps to reach 1.25% following strong economic data ahead of NAFTA’s sixth out of seven scheduled rounds of negotiations. By raising its interest rate, Canada confirms the healthy conditions in which its economy and its partners are lying to right now and maintains inflation on target. With a jobless rate of 5.70% (lowest rate since September 30th 2007) and Y/Y November CPI of 2.10%, the Canadian economy is approaching full employment capacity but this doesn’t suffice for having investors to neglect coming difficulties it might have to overcome next week NAFTA meeting (January 23rd 2018). The loonie instantly fell by 0.8% (CAD/USD remaining at 0.8054; +1.05% YTD though) against the greenback following BoC Governor Stephen Poloz’s recall of uncertainties surrounding NAFTA’s denouement, as the impact of slowing foreign direct investment is already hampering the economy.

Trump’s aggressive protectionism policy also poses considerable difficulties for US industrials and farmers who warned Trump not to quit NAFTA, as tariffs could considerably escalate and render American producers’ prices less attractive for their neighbors (Mexico and Canada being equivalent to 34% of US total exports as of 2016 according to the Congressional Research Service).

We remain confident that the occurrence is unlikely, as the stakes are too high to be dismissed. Even Donald Trump confirmed to the Wall Street Journal last week that he would be “a little bit flexible” on the matter.

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