WTI crude oil futures fell below $116 a barrel on Friday, but still stand to make a sixth weekly gain after the eagerly anticipated OPEC+ meeting produced only a small increase in output, despite speculation of a larger increase in supply.
The group of the world's major oil producers decided to increase output by 648,000 barrels per day in July and August instead of the previously agreed 432,000 barrels per day, a move deemed insufficient to compensate for the loss of supply from Russia. Russian production has fallen by 1 million bpd since the invasion of Ukraine and is likely to fall further once the EU ban on Russian oil imports takes effect. There has been speculation that the Saudis are preparing to increase production as part of a reset of relations with the U.S., and even suggestions that Russia may be exempted from OPEC+ monthly supply agreements. However, this has not happened and Russia is still part of OPEC+.
This situation could cause the oil market to be pressured by more demand than supply this summer, which in turn could keep fuel prices high. High fuel prices mean high consumer inflation, which could possibly decrease only in the autumn. As a result, the most expensive holiday season in history could be upon us, and economists will have the perfect sample to test demand in a high price environment. Will some people cancel their trips? Or will they grit their teeth and go on vacation after all? It will be an interesting handful of statistics for the summer months that we will learn in early fall.
Meanwhile, as far as current events are concerned, investors' eyes may be turned to data from the US labor market today. At 2:30 pm, we will see the release of Non-Farm Payrolls (NFP). The market consensus is for a reading of 325,000, according to a Bloomberg survey. The lowest estimate in the survey is 250k, and the highest is 450k. The data may show the condition of the US labor market, which in turn may be important for further actions of the US Federal Reserve in the context of interest rate hikes. For the time being, the market assumes at least a 1pp increase at the next two Fed meetings.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
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