OPEC Monthly Oil Market Report – August 2017
This positive trend from the 2Q17 is expected to continue in the 2H17 – albeit at a slightly lower rate – as the
most recent labour market data and the energy sector’s rejuvenated investments programs will support this
trend. Depending on the ability of the new US administration to implement its envisaged program to achieve
higher GDP growth rates, there may be some upside to the growth level, but the political uncertainties still
seem to be significant. Even more so, there is the challenge of the re-emerging debt ceiling debate. The US
Treasury Department has warned that it will not be able to service its obligation beyond the end of
September. This has created already numerous issues in the past years and some negative impact on the
US economy may again become visible if this is not solved in the near-term. The Treasury Department has
been employing cash-conservation measures already since March, when the formal ceiling of around
$20 trillion was reached. The ability to employ those measures is running out mid-October latest. After that,
the government won’t have enough money to pay its most basic obligations like interest on debt and Social
Security, or to process other regular payments. While usually this has been solved in one way or the other in
the past years, the situation needs to be closely monitored as its impact may be significant in particularly
politically challenging times as currently. In addition to raising the debt ceiling, the US Congress would also
need to pass next year’s budget for the upcoming fiscal year, which starts by October. This also opens some
room for debate and may lead to requests by lawmakers to pass the bill.
The development of the debt ceiling debate may also influence the monetary policies of the
. Currently, it seems that it may go ahead with its plans of gradually normalising its
monetary policy, given the ongoing momentum in the US economy. This plan of normalisation not only
includes a gradual increase in interest rates but also managing down its balance sheet. This was originally
expected to start in September or at the October/November-meeting, depending on the debt ceiling situation.
While the Fed’s intention seems to be to gradually raise interest rates, officials have made clear that this is
contingent on continued confidence that the Fed will eventually achieve its 2% inflation goal. This will also
need to be discussed at the upcoming September meeting as inflation has again started falling in the past
months. It stood at 1.6% y-o-y in June, the lowest in 8 months. Also, core inflation decelerated as it stood at
1.7% y-o-y, clearly below the Fed’s target for a third consecutive month and the lowest level in more than two
positive momentum continued, but progress has been mixed again. Non-farm payroll
additions were strong again in July as 209,000 new jobs were created, slightly lower after an upwardly
revised 231,000 additions in June. Average hourly earnings growth for the private sector remained stable as
earnings increased by 2.4% y-o-y. Some weakness was reconfirmed in the duration of unemployment, as
long-term unemployment rose again to reach 25.9% in July, up for a third consecutive month, after standing
at 24.3% in June. Finally, the participation rate rose to 62.9% in July, compared to 62.8% in June and 62.7%
in May, a slightly positive sign.
On the domestic side,
increased in June by 2.0% y-o-y, the same as in May. It was
again supported by a better situation in the energy sector. Mining – which includes oil sector-related output –
rose by 9.9% y-o-y in June, after 7.8% y-o-y in May, the strongest performance by this sub-group since the
beginning of 2015. Manufacturing, another important sub-group of industrial production, rose by 1.2% y-o-y
in June, the same level as in May.
was also supported by retail sales numbers, which
stood at 2.9% y-o-y in June, below the May level of 4.1% y-o-y. As it is the lowest level of expansion in
almost a year, the trend will need to be monitored, but given the supportive dynamic of the underlying
economy it is expected to be a temporary dip. The generally positive trend in domestic consumption was also
visible in the Conference Board’s Consumer Confidence Index, which rose significantly to 121.1 in July, after
having reached a level of 117.3 in June.
Purchasing Managers’ Index
(PMI) for the manufacturing sector as provided by the Institute of
Supply Management (ISM) also indicated ongoing support in the underlying economy, while some
deceleration in both the manufacturing and non-manufacturing sector became obvious. The manufacturing
PMI fell to 56.3 in July from 57.8 in June, but it remains still significantly higher than the 54.9 seen in May.
The important index for the services sector, which constitutes more than 70% of the US economy, fell
considerably to a level of 53.9 in July from 57.4 in June, a situation that will certainly need to be monitored.