- What happened last week?
One of the most important developments last week was OPEC’s biannual meeting. As expected, the cartel did not trim nor freeze its production, and it did not declare an official output quota. During the last meeting of the organization in December, OPEC did not reiterate its official production quota of 30 million barrels a day, and caused oil prices to plummet below $30 a barrel. Since then, due to supply cuts in Canada, the U.S., Venezuela and Nigeria, the price of crude oil climbed to $50 a barrel.
However, in last week’s meeting, the market mostly anticipated OPEC’s decision, and the outcome did not greatly impact oil prices. While Iran is pumping more crude oil into the global market to increase its production to pre-sanction levels, Saudi Arabia is expected to raise its output in the summer season due to higher domestic electricity demand. The market will await OPEC’s next meeting at the end of November.
Another important development last week was the weak nonfarm payroll data for the month of May. The U.S. economy added just 38,000 jobs in May, its fewest since September 2010, and raised questions whether the Federal Reserve would raise interest rates this summer. The Fed has been cautious since it last made a rate hike in December. In addition to U.S. macroeconomic data, the bank is also paying close attention to the slowdown in the global economy, the indicators in China, and the U.K.’s referendum on June 23 to decide whether to exit the EU or not.
- What to expect from this week?
The Fed Chair Janet Yellen said this Monday that a gradual increase in interest rates is still likely despite weak jobs data last week.
“One should never attach too much significance to any single monthly report," she said during her speech at the World Affairs Council of Philadelphia, referring to the unemployment report released last Friday.
"If incoming data are consistent with labor market conditions strengthening and inflation making progress toward our 2 percent objective, as I expect, further gradual increases in the federal funds rate are likely to be appropriate," she said.
The remarks indicate that the Fed is likely to wait until July to gauge improvements in labor conditions and the jobs report in June before making a decision on a rate hike.
After weak data last week, this Thursday’s initial jobless claims gained significance in ascertaining whether the weak nonfarm payrolls last Thursday was a blip in the economy, or if the data points to weakening labor market conditions in the U.S.
The global oil market will focus on supply disruptions in Nigeria, which pushed crude prices higher. The market will also watch the weekly crude and gasoline inventories in the U.S. which will be announced on Wednesday. While inventories fell by 1.4 million barrels last week, the market expectation for crude stocks is a decrease of 3.5 million barrels. A decline greater than this level could push crude oil prices to their highest level this year.