Oil prices won't top $100 in the next decade, OPEC predicts

Oil rig, oil

Crude will stay below the $100-a-barrel (bbl) level for at least the next 10 years, according to the Organization of Petroleum Exporting Countries (OPEC). Read More

Market buzz: Opec agrees 1.0m b/d increase, Bull-Bear signal 'moving closer to buy'
Saturday 23 Jun 2018

(Sharecast News) - 1700:Close Stocks jumped at the end of the week, with the Footsie managing to pare some of its recent losses on the back of gains in the oil patch in the wake of OPEC's latest output decision. Analysts said the cartel's announcement that it would reduce its current underproduction was likely to result in an effective increase in output of about 700,000 barrels day, despite which crude futures shot higher. Giving the second tier index a boost was news that US-based Echostar had taken a stake in rival Inmarsat. Pacing losses on the FTSE 250 meanwhile were Engineers and TI Fluid Systems, with the latter taking a hit from US President Donald Trump's threat to impose tariffs on cars coming in from the EU. FTSE 100 up 125.83 points or 1.67% to 7,682.27. 1534: Trump threatens 20% tariffs on European cars entering US. 1445: IHS Markit US manufacturing PMI slips from 56.4 for May to 54.6 in June (consensus: 56.3) - a seven-month low. "The flash PMI surveys add to evidence that the US economy is enjoying a strong second quarter. Despite growth cooling slightly in June, the latest numbers round off the best quarter for three years, and suggest economic growth has lifted markedly higher than the 2.3% rate of expansion seen in the first quarter to well over 3%," the survey compiler says. "[...] Price pressures remain elevated, however, widely blamed on a mix of rising fuel prices and tariff-related price hikes, as well as supplier's gaining pricing power as demand outstrips supply for many inputs." 1430: Saudi reportedly confirms OPEC+ to increase combined output by 1.0m b/d - on paper it would seem. Shares of BP and Shell rapidly climbing up the Footsie leaderboard. "Based on our previously published balance, we expect OPEC crude output to increase by about 700 kb/d by the end of the year, assuming Libya's oil output can rebound to 900 kb/d. This agreement is consistent with those expectations, though we see a slight upside risk in Saudi, UAE, and Kuwaiti output expectations compared with our balance," Barclays Research says. 1415: Front month Brent crude oil futures higher by 2.86% at $75.20 per barrel on the ICE. 1143: At the Opec meeting, Saudi Arabia could be closing in on a deal to persuade Iran to agree to an output increase. "We are cooking something," Iranian oil minister Bijan Zanganeh told Reuters after meeting Saudi Energy Minister Khalid al-Falih before the Opec talks. Saudi Arabia and non-Opec member Russia want to up production by around 1m barrels per day, which is around 1% of global supply. Walking between meetings, the Iranian oil minister said "we are not here to receive instruction from President Trump and apply it and implement it." Asked whether he supports increasing production, he told reporters, including AP: "Some of the countries are against any increase, and ask them. I am not representative of them." He earlier said $70 per barrel was a "very good" oil price. 1116: Set for the worst week in three months, Europe's bounce looks more reflexive than committed, says market analyst Ken Odeluga at City Index. "Another tell-tale tumble of the cars and parts sector reveals continuing wariness on the next likely sphere to be impacted by deteriorating trade relations. Spanish and Italian bank shares lead that sector higher. The hunt is on for strong financial services candidates in those regions that could benefit from the rise in global real rates having been indiscriminately dragged lower over the last month. "A favourable reversion of economic activity in Europe following the stream of weak prints over the last few months also backs the logic there may be pockets of undervaluation. Additionally, US lenders acing the Fed's latest stress test, aids select European financials with a U.S. presence join the rotation." With the BoE under the microscope this week, Governor Mark Carney "studiously avoided" any further mention of monetary policy in his Mansion House speech overnight, which has allowed cable to pierce $1.33, "a clear marker that bulls had held back from even during the post-BoE rip", Odeluga says. "As exhaustion becomes an issue, retaking ground above moving averages, particularly the 21-day exponential MA at $1.3331, may extend the move." 1101: Buy in the summer, wonders BofA Merrill Lynch? The BofAML 'Bull & Bear indicator' is at 2.9, moving toward a summer 'buy signal', strategists note. The triggers are "likely to be further outflows from risk assets (e.g. $35bn equities, $5bn HY redemptions in coming weeks), plus clear break in [the S&P 500] below important 2650 level, weak June payroll that could take a Fed hike or two off the table; we remain bearish until then." Yield on benchmark 10-year US government note up by 1bp to 2.91%, yield on 10-year Italian BTP down 6bp to 2.67%. 0949: The FTSE 100 is up 0.5%, likewise France's CAC 40, while Germany's DAX is up 0.35%, while outdoing them all is Italy's FTSE MIB, up 1.1%. The divergent trends in the services and manufacturing PMIs portray a eurozone economy that's still showing internal strength, but "increasingly faces headwinds from moderating external demand", says Oxford Economics. "The services sector had been hampered by an unusually long list of adverse temporary factors over the last months. With such factors being absent in June, its surprising jump likely gives a better sense of the domestic economy's health." The manufacturing PMIs' continued downward trend in June is, says economist Moritz Degler, "a clear reflection of the US's persistent hostility with key trading partners and with no end in sight for the trade dispute, industry confidence is likely to keep on deteriorating. As such, our recent downward revision of the 2018 GDP growth outlook for the eurozone to 2.1% looks justified." His colleague Ben May also put out a note on Italy, saying its high public debt and weak growth is a "toxic combination" that is "likely to haunt it and the eurozone for years to come". But Oxford Economics' analysis shows that the likelihood over the next five years or so of these issues triggering a wave of cataclysmic events that could blow apart the single currency bloc "is small". "In the near term, we see only a small risk of the government dogmatically sticking to its radical and unaffordable fiscal plans and triggering another euro crisis." 0939: The composite PMI in the Eurozone increased to 54.8 in June from 54.1 in May, above the consensus forecast of 53.9. The manufacturing PMI dipped further, by 0.5 points to 55.0, while the services PMI jumped to 55.0, from 53.8 in May as surprising strength was evident in both Germany and France. "A relieving headline," says Pantheon Macroeconomics, "indicating that the slowdown in the EZ economy reversed slightly at the end of Q2." Economists noted employment and work backlogs rising in both sectors, plus input price inflation accelerating due to higher wage costs and a jump in raw material and energy prices, with firms are trying to pass on costs to customers, "although not everyone is succeeding". 0913: European markets remain focused on OPEC's oil supply verdict today, says market analyst Naeem Aslam at Think Markets. "For us, it is not about how much production surge we would see by the cartel, but how investors would see the cartel from here onwards. This is because Iran clearly has clearly walked away and it does not support the production increase. A divided OPEC is the last thing you want to see especially when you see the US shale oil becoming an important factor when it comes to the supply and demand equation. He says the trade war between the US and China is "an interesting affair" for traders who love volatility, but is surprisingly not helping gold. "It is providing a lot of opportunities for day traders as one can continue to buy the dip and sell it at its top. Once again, yesterday was one of those days, equity markets faced selling pressure as traders took their profit off the table. The moment this issue takes the centre stage, the risk off trade takes over. But interestingly, the risk-off trade doesn't necessarily mean that investors are buying gold. The precious metal itself is suffering from lack of demand." 0900: After the US Supreme Court yesterday voted 5-4 to change the rules over physical presence requirement for online retailers, allowing states to collect extra sales tax, broker Liberum says it does not expect much potential impacts on the companies it covers. Liberum analysts see no impact for Ted Baker, Joules, and Naked Wines, an "immaterial impact" for Boohoo and a modest but "workable impact" for ASOS. 0858: UBS sees a "potential long term improvement story" at Burberry, upping its target price on the fashion company but keeping its 'neutral' rating as the shares are on a high near-66% premium to the market. Assessing pricing, product and internal morale, UBS said that, while the key collection from the new creative director won't land until May/Jun-19, "rising employee views imply small launches for now have gone well and suggest retail LFL growth upside". Analysts now forecast 4% growth for Q1 after ending the last financial year with quarterly growth of 2%. "However, on 25.1x cal 2019e PE much is already priced in; we remain neutral with a new PT of 2150p, waiting for better evidence of a recovery." 0839: Mixed economic data out of France. The flash manufacturing PMI fell short of expectations with the reading of 53.1 versus a forecast of 54 but a strong services PMI number helped support European markets 0837: Friday's London open market report finds stocks up early trade, helped along by a rebound for housebuilders as investors continued to digest a more hawkish than expected policy announcement from the Bank of England and looked ahead to the OPEC meeting in Vienna. The FTSE 100 was up 0.4% to 7,584.03, while the pound was flat against the euro at 1.1406 and up 0.4% versus the dollar at 1.3297. 0812: The housebuilding sector fell 3% yesterday after the Bank of England vote on a rate rise moved from 7-2 last month to 6-3. Broker Liberum says this investor nervousness around rate rises "was overdone", arguing that only around 15% of the stock or mortgages (and only 5% of the flow) are interest only. "For those on repayment mortgages, a 100bp move in mortgage rates (from an average level of 2% now) would move payments up 12%, but payments are only around 25% of income, so this would be offset by a 3% increase in wages. We think it highly unlikely that rates would rise this quickly without wage growth of at least 3% per annum. This suggests that nervousness around rate rises yesterday was overdone, especially as the bond market did not seem to show much reaction to the movement in the MPC vote." Liberum's top picks are Bellway (with a target price of 4080p), Crest Nicholson (528p) and Galliford Try (1116p). 0757: At midnight the EU's sanctions against a range of US goods kicked in on Friday, including bourbon, jeans and motorcycles. CMC Markets analyst Michael Hewson said "these could well prompt a counter response from the US, with the European auto sector likely to be next in the firing line, if President Trump remains true to his word".

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