Outlook for Commodities As OPEC Prepares to Meet in Algiers this Week

The U.S. Federal Reserve has made a dovish decision not to raise interest rates in response to increased fears about weak economic trends. The fed had been contemplating a rate hike since the markets opened this year and the clamor for a September rate hike got usually high after the strong jobs number reported in June and July. However, the Fed has hinted that it would leave interest rates unchanged for at least one month.

Fed chair Janet Yellen noted that “our decision does not reflect lack of confidence in the economy.” He also noted that “the economy has a bit more running room than might have been previously thought.”  This post seeks to explore the resultant effect of a fed’s decision not to raise interest rates on the economy and on the commodities markets.

Russia and Saudi Arabia has Restored Hope in Crude Oil

Commodities traders with an exposure to oil might be interested in knowing that oil prices might record an uptrend in the next couple of weeks. Russia is reportedly interested in working out a deal with Saudi Arabia and other OPEC members to freeze oil production.

Russia will be holding an informal meeting with OPEC on the sidelines of this year’s International Energy Summit holding in Algeria this month. It appears that the talks about a supply freeze among oil producers will succeed this month.

However, oil prices are strangely down despite the increased possibility of a supply freeze in oil.  Brent Crude for November delivery was down 3.69% on Friday to end the session at $45.89 per barrel. Nonetheless, Brent Futures in London ended the week with a $0.12 or 0.26% weekly gain.

Experts Think That The Meeting Will Be Futile

Analysts think that the meeting between OPEC member nations and Russia in Algiers this week will do very little to curb the supply glut in oil. About two weeks ago, OPEC General Secretary Mohammed Sanusi Barkindo, hinted that OPEC might not make a decision on production freeze when it meets with Russia this month.

Mohammed Barkindo noted that people shouldn’t expect a decisive move to freeze or cut oil production after the Algiers meeting. He observed that the meeting “is an informal meeting, it is not a decision-making meeting.” Nonetheless, he agrees that one of the issues up for discussion is the need to find a way to stop the production glut. Hence, he hasn’t ruled out the possibility that OPEC might call a formal meeting to decide on production quotas.

John Hall, chairman of U.K. consultancy Alfa Energy, observed that it won’t make any sense for OPEC to decide on a production freeze that exempts Libya, Nigeria, and Iran. In his words, such a move will be “pointless” because “others would have to cut production. Saudi would have to lead such a cut. And they wouldn’t do it because that would mean giving back the market share they gained in the past two years.”

Here’s Where The Markets are Headed

Commodities traders are up for an eventful week because the economic calendar is pregnant with events that could move the market. In fact, an analyst at 24Option notes that “fact that this week is filled with news of economic importance means that traders can expect to witness increased volatility”.

On Tuesday, the S&P Case-Shiller HPI and Consumer Confidence reports will be released. The two reports do not have much power to move the markets but they demand extra attention from traders and investors.

On Wednesday, the market will be treated to data on Durable Goods Orders and the EIA Petroleum Status Report. Commodities traders will be especially interested in the EIA Petroleum Status Report because it provides data on inventories levels and it could influence oil prices. For the week ending September 16, Crude Oil inventories was down 6.2M barrels, gasoline was down 3.2M barrels, but Distillates were up 2.2M barrels.

On Thursday, the market will be treated to GDP data, International Trade in Goods, and Jobless Claims reports. In the first quarter, the Real GDP was 1.1% and the Consensus estimate now stands at 1.3%. More so, the consensus estimate for Jobless Claims stands at 260,000 up from prior reading of 252,000. On Friday, the market will be treated to data on Personal Income and Outlays, Chicago PMI data, and Consumer Sentiment.