OPEC Monthly Oil Market Report – September 2017
The labour market is continuing to improve and consumer sentiment is positively developing, an important
factor when considering that private household consumption accounts for more than two-thirds of US GDP.
Additionally, the recently weakening US dollar may lift exports and the energy sector’s rejuvenated
investment programmes will also support this trend. In the meantime, it remains to be seen to which
magnitude Hurricanes Harvey and Irma may have negatively impacted growth in the current quarter, but
based on past experience the negative effect is forecast to be visible, but minor, while the damage may be
severe. This damage may, however, result in rebuilding efforts in 4Q17 and 1H18 that may have a positive
impact on GDP growth. Another upside risk for the coming quarters may be the implementation of the
US administration’s envisaged tax reform, which is supposed to be finalised by the end of the year. This may
also provide some upside to growth, but political uncertainties still seem to be great. Even more significant is
the challenge of a re-emerging debt ceiling debate after a recent agreement that may only last up to the end
of the year. US treasury bills have already started to reflect some uncertainty before the agreement was
made and uncertainty may again re-emerge. In addition to a short-term solution on the debt ceiling, the
budget for the upcoming fiscal year still needs to be finalised.
While the fiscal side is facing some uncertainties, the
US Federal Reserve’s (the
decisions are an important factor to be monitored. Currently, it seems the Fed may go ahead with its plans to
gradually normalise its monetary policy, given the ongoing momentum in the US economy. This
normalisation plan not only includes a gradual increase in interest rates, but the managing down of the
balance sheet. 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
and in this respect some concern has been raised, as inflation has again started falling in the past months. It
stood at 1.7% y-o-y in July, slightly higher than the 1.6% y-oy- recorded in June. Core inflation remained at
1.7% y-o-y for the third consecutive month, below the Fed’s target. Upcoming meetings in the second half of
September will provide further insight into the near-term development of the US monetary policy and an
interest rate rise seems to be relatively unlikely until the end of the year, while a reduction in the Fed’s
balance sheet may be implemented.
positive momentum continued, but progress has been mixed again. Non-farm payroll
additions were slightly below expectations at 156,000 job additions in August, after a downward-revised
figure of 189,000 new jobs in July and 210,000 additions in June. Average hourly earnings growth for the
private sector remained stable as they increased by 2.3% y-o-y, the same level as in the past months.
Long-term unemployment numbers improved slightly to 24.7% in August, compared with 25.9% in July.
Finally, the participation rate remained at 62.9% in August, the same level as in July.
improved again in July, rising by 2.2%, compared with 2.1% y-o-y in June and May. It
was again supported by a better situation in the energy sector. Mining – which includes oil sector-related
output – rose by 10.2% y-o-y compared with 9.3% y-o-y in June and 6.9% y-o-y in May. Manufacturing,
another important sub-group of industrial production, rose by 1.4% in July, after reaching 1.5% y-o-y in June.
was also supported by retail sale numbers, which stood at 4.2% y-o-y in July, after
reaching 3.4% y-o-y in June. The generally positive trend in domestic consumption was also visible in the
Conference Board’s Consumer Confidence Index, which rose to 122.9 in August, after hitting 120.0 in July
and 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, with stronger
numbers in both the manufacturing and non-manufacturing sectors. The manufacturing PMI increased to
58.8 in August, compared with 56.3 in July and 57.8 in June. The important index for the services sector,
which constitutes more than 70% of the US economy, rose to 55.3, after being retraced to 53.9 in July.