OPEC Monthly Oil Market Report – September 2017
Graph 3 - 1: Manufacturing and non-manufacturing ISM indices
forecast for both 2017 and 2018 remains unchanged at 2.1% and 2.2%, respectively.
While the 3Q17 growth may be negatively impacted by the two current hurricanes, further GDP growth may
materialise via reconstruction efforts after the hurricane season and particularly if the government
successfully pursues envisaged reforms, predominantly tax reforms. However, numerous uncertainties
remain, mainly in political decisions, but also for monetary policies. To some extent these are dependent on
the potentially re-emerging debt ceiling debate towards the end of the year.
US trade policies and global trade
Global trade is once again attracting attention. The new US Administration has decided to review numerous
trade agreements, including the North American Free Trade Agreement (NAFTA), to withdraw from the
Trans Pacific Partnership (TPP), open discussions on trade with China and announce a potential change in
its trade agreement with South-Korea (“Korus”). Furthermore, a border adjustment tax with neighbouring
Mexico has also been debated over the past months, however this idea is currently not being pursued
further. While these US-driven initiatives indicate a trend toward a more protectionist global trade regime,
China is pushing to finalise a large trade agreement in Asia-Pacific – the Regional Comprehensive
Economic Partnership (RCEP) – by the end of this year.
Global trade has been very supportive to global economic recovery and 2Q17 trade growth of 4.3% marked
the largest rise since 2011. The ongoing NAFTA negotiations, in combination with US trade talks with China
need close monitoring, given that the main trading counterparts for the US – Canada, Mexico and China –
not only account for around 47% of its imports, but also for 42% of its exports. It should be noted that due to
the elimination of tariffs between the participating NAFTA nations, the US was able to import much of its oil
more cheaply from Mexico and Canada. However, should the US Administration insist on one of its
demands to impose higher tariffs on goods imported from Mexico, this could have severe impacts on the
cost of imported goods in the US in the short term. In turn, Mexico could revert to the high tariffs it had
before NAFTA, which would impact US exports of many commodities, including oil products, for which
Mexico is the one of the largest export destinations.
In addition, long-standing global trade arrangements may also be impacted by the ongoing Brexit
negotiations as well as the discussion of additional sanctions imposed by the US on several world
economies affecting global trade patterns. Depending on the outcome of all these developments, the results
may have a significant impact on global economic growth, oil-trade and oil-demand.
ISM manufacturing index
ISM non-manufacturing index
Sources: Institute for Supply Management and Haver Analytics.