Intraday Market Thoughts

OPEC Nears Deal

by Adam Button
May 22, 2017 23:02

Saudi Arabia's oil minister made a trip to Iraq Monday and shored up support for a 9-month quota extension. On Monday, the kiwi was the top performer while the pound lagged. A speech from the Fed's Brainard later could be telling. There are 5 Premium trades currently open.

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OPEC Nears Deal - Spx Oil (Chart 1)

Saudi's Al-Falih traveled to Iraq amidst reports that Baghdad, Oman and Kuwait only wanted a six month extension to OPEC quotas. His plan worked and late in the day, Iraqi officials said they were on board. 

What's puzzling is that Iraq has been one of the worst violators of the initial production levels as it seeks to recover lost ground due to war. Al-Falih was confident a nine-month deal is coming so that could move the discussion towards deeper cuts in what's a possible upside risk on Thursday when the decision is due.

The wildcard remains Iran. Leaders there have been less-enthusiastic about cuts and the government wants to regain market share. On the topic of oil, the Fed's Kaplan talked about US share on Monday and he was highly optimistic about the amount of investment and potential yield from technological improvements in US shale. He also hinted that breakeven points are coming down. A huge risk for 2018 is that US supply continues to climb and it forces OPEC to pump flat-out.

On monetary policy, Kaplan's comments where characterized as typically-hawkish by the newswires but it was a mischaracterization. Indeed he said he still favors 2 more hikes this year but he repeatedly warned that inflation numbers had raised warning signs and that he will be watching closely.

At the moment, the Fed calendar until the June 3 blackout is quiet in terms of heavyweights. That's likely to change as talks are added but at the moment, the only Fed governor on the schedule is Brainard, who speaks at 2330 GMT today. She's a dove but s also one of the first policymakers who tipped the March hike. If she drops any hawkish hints, it could send the dollar skyward.

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