Market Quote: U.S. Inflation Surprises, OPEC’s Influence on Oil Prices
Author: The editor's desk
January 12, 2024
Members of AGF’s Investment Management Team weigh in on the week that was in global financial markets.
The Inflation Grind
U.S. inflation data for December was released on Thursday and surprised markets by coming in slightly hotter than consensus expectations. Predictably, U.S. stocks sold off in the immediate aftermath of the announcement, but closed the day flat as the battle among investors for when interest rates will be cut continues to fluctuate based on monthly employment and inflation data releases.
The trajectory towards lower inflation could continue over the coming months despite this short-term blip but market expectations of nearly six U.S. interest rate cuts this year – with the first expected in March — may need to be tempered, both in terms of their number and their timing.
Range Bound
After a precipitous decline following a stronger-than-expected summer, crude oil has seemingly settled into a range bound pattern over the past month. While demand patterns continue to hold up better than anticipated, recent headlines have leaned negative based on Saudi Arabia lowering its official selling price (OSPs) for certain markets and OPEC’s cohesion being called into question given choppy messaging regarding supply cuts and Angola’s recent exit from the group.
Despite these headlines feeding into the bearish sentiment, it is more likely that Angola’s exit strengthens OPEC’s cohesion given that Angola was one of the few prominent names in the cartel that was opposed to the Saudi-orchestrated supply cuts and had made it apparent that it was likely to outproduce its allotted quota.
Further, it is important to consider that a major shift in policy towards defending market share is likely at odds with the spending plans of major cartel members such as Saudi Arabia, the United Arab Emirates and Iraq. As such, it remains probable that the OPEC+ cuts are rolled back gradually as market fundamentals strengthen and that OPEC will continue to exert a significant amount of influence over the market going forward.
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The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds, or investment strategies.
Commentary and data sourced from Bloomberg, Reuters and other news sources unless otherwise noted. The commentaries contained herein are provided as a general source of information based on information available as of January 11, 2024 and are not intended to be comprehensive investment advice applicable to the circumstances of the individual. Every effort has been made to ensure accuracy in these commentaries at the time of publication, however, accuracy cannot be guaranteed. Market conditions may change and AGF Investments accepts no responsibility for individual investment decisions arising from the use or reliance on the information contained here.
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