Oil prices are trading in positive territory on Tuesday, after the Iranian Oil Minister Bijan Zanganeh said that OPEC is likely to stick to its strategy of cutting output and extend the agreement for another six months. The comments of the official boosted oil prices, that were diving deep down the ocean of downbeat US reserves data and drilling activity. Both crude oil grades added about 1%, but growth is unlikely to be sustainable given the absence of concrete statements from the cartel.
The cartel and other oil-producing nations agreed to cut production by 1.8M barrels in the first half of the year, while stating strong commitment to reaching that target, according to OPEC secretary’s comments at the last meeting in Kuwait. Russia and Saudi Arabia made the biggest cuts, while the latter even exceeded its promises, later returning to the established quota. Returning to the game of elimination is an unpleasant scenario for OPEC, and therefore some countries called for an extension of the pact. However, the stance of the two main producers, Russia and Saudi Arabia, is still unclear. The Minister of Energy Alexander Novak, who is the head of the Russian delegation in Kuwait, said that there have been no clear arguments for the extension of the agreement yet.
Since the introduction of quotas for production, oil prices have managed to come very close to the $60 mark. However, this gave an impetus to the revival of the production in the US that managed to enter the profitability zone. The reluctant desire of the cartel to extend the agreement disappointed investors, sending prices into bearish control.
The US dollar stabilised after a sharp drop below 99.00 on Monday, as Trump’s health initiative did not find support in the Congress. Nevertheless, the relative stability of the US stock market suggests that investors continue to believe in the capabilities of the American leader and look forward to implementing his fiscal and tax plans that will accelerate the country’s economic growth. Today, focus turns to the publication of important economic data on trade balance and consumer confidence in the US, which will allow us to correct the forecasts for future US rate hikes. A positive deviation will probably allow the dollar to recoup after a series of defeats, realising the outlined correction at the level of 100. Later, Janet Yellen will give a speech, during which she will probably state once again the need to be cautious in tightening the policy. However, the key announcement will revolve around the forecast of rate hikes in 2017, which, as expected, will remain at the level of 3 rates.
The Japanese yen rose after a slight pullback on Monday, with USDJPY consolidating before breaking below the level 110, while the US dollar remained weak.