New York – Washington Letter for Week beginning April 11
What happened last week?
- Trade deficit growth
The U.S. trade deficit grew $1.2 billion in February to reach $47.1 billion from $45.9 billion in January. As a result, Dow Jones and S&P 500 indexes recorded their largest daily declines in a month in the U.S. stock market.
- Tax system loophole
U.S. President Barack Obama urged Congress on Tuesday to close loopholes in the American tax system to help prevent U.S. companies from avoiding paying taxes. The next day, pharmaceutical giant Pfizer announced that it is walking away from a $160 billion merger deal with Ireland-based Allergan, citing U.S. efforts to prevent corporate inversion.
- Lawsuit on merger of oilfield service companies
The Justice Department filed a lawsuit to block a $34.6 billion merger between the world’s No. 2 and No. 3 oilfield services companies – Halliburton and Baker Hughes -- saying the move would undermine competition in the energy sector.
- BP settlement
On Monday, a U.S. judge approved British energy company British Petroleum's (BP) $20 billion settlement agreement for 2010 Macondo oil spill.
In total, the British giant's total tab for the disaster, including other settlements, penalties, fees and cleaning expenses, is expected to be over $50 billion.
- U.S. weekly crude oil inventories
U.S. weekly crude oil inventories decreased for the first time in 8 weeks.
Federal Reserve officials are divided on a decision whether to raise interest rates in April, according to minutes released Wednesday from the group’s March meeting.
Federal Reserve Chair Janet Yellen said Thursday that she does not believe the U.S. economy is a bubble. At the meeting when Yellen was joined by three of her predecessors -- Ben Bernanke, Alan Greenspan and Paul Volcker – the Fed heavyweights discussed significant issues of the U.S. economy.
The global rating agency Moody's has kept Turkey's credit rating unchanged, it was announced late Friday.
Moody's downgraded ratings of three major oil companies -- Royal Dutch Shell, Total S.A., and Chevron.
- Oil production freeze
Kuwait OPEC Governor Nawal Al-Fuzaia said OPEC and major non-OPEC countries are likely to agree on an oil production freeze deal on April 17.
The week ahead
– All eyes on Doha oil price freeze meeting
All eyes will be in Doha, Qatar this week as major oil producing countries – non-OPEC Russia, OPEC heavyweight Saudi Arabia, and 13 others -- will meet on April 17 to discuss the global oil market and the plummeting prices.
Venezuela, Russia, Saudi Arabia and Qatar had first proposed in February to freeze their individual oil output at January levels to trim the glut of supply in the global market.
While Iran said it would not freeze its oil production but would increase its crude exports after the sanctions removal, it is nonetheless expected to participate in the Doha meeting on Sunday.
Meanwhile, the global crude market has already begun pricing in the positive impact of a potential successful deal at the Doha meeting and this has been reflected on crude prices. Global benchmark Brent crude climbed above $40 per barrel early Monday and American benchmark was just below $38 a barrel - both benchmarks reflecting a rising trend.
Provided there is no a sudden unexpected jump in the value of the U.S. dollar this week, or in the U.S. weekly crude oil inventory data on Wednesday, oil prices could rise to challenge the $50 per barrel mark, and may even surpass this threshold if the Doha meeting concludes successfully with an agreement on freezing output levels.
The recent price rise, however, is mostly psychological. Many participants of the upcoming Doha meeting have agreed to freeze their output at January levels, but the production of Saudi Arabia and Russia – the world’s top two crude producers – were at their highest levels in January. This means that their decision to freeze individual output levels will not trim any oversupply in the global market and the glut will continue to increase since global crude demand still lags behind total production, due to the economic slowdown in China and Europe.
However, the psychological effect is still important since Saudi Arabia is willing to sit and discuss low oil prices. The Kingdom refused to trim its output level during OPEC’s last three meetings in November 2014, June 2015 and December 2015.
The Saudi strategy was to continue to let oil prices fall to drive high cost producers out of the market in order to increase its share in the global market. To some extent this succeeded. Oil production in the U.S. fell by 500,000 barrels per day since April 2015, while the Russian economy encountered hardships.
- Obama’s meeting with Fed Chair
In other events this week, the U.S. President Barack Obama will meet with Federal Reserve (Fed) Chair Janet Yellen on Monday to discuss the economy and possible reforms in Wall Street.
- Retail sales, producer price index and consumer price index
Retail sales for the month of the March will be announced on Wednesday. They are expected to rise by 0.1 percent, while it fell by 0.1 percent in February.
In addition, the producer price index for March is expected to rise by 0.3 percent, as opposed to a 0.2 percent fall in February.
And, consumer price index for March is expected to rise by 0.2 percent, as opposed to a 0.2 percent decline in February.