OIL & CURRENCY MARKETS
Since August, both crude oil and currency markets have been influenced by lower economic growth expectations in countries outside the United States. Prices in both markets recently broke out of established trading ranges, driven by concerns about weaker future global demand. The current situation, with the dollar index and oil prices moving in opposite directions, presents a sharp contrast to one in which crude oil supply disruptions or geopolitical risks would cause both the dollar index and crude prices to rise.
Although the U.S. economy showed robust growth in the third quarter of 2014, recording an estimated 3.5% growth rate, economic data from Europe and China have led to expectations of potentially weaker demand for crude oil. Eurozone gross domestic product (GDP) growth was 0.2% in the third quarter, and inflation was low at 0.3% and 0.4% in September and October, respectively. In China, third-quarter GDP growth was 7.3%, the lowest annual growth rate since first-quarter 2009.
The divergence of growth expectations between the United States and the rest of the world is also reflected in currency markets. As economic growth slows in countries other than the United States, it increases the likelihood that their central banks will implement further steps to stimulate growth, like the recent announcement of rate cuts and quantitative easing by the European Central Bank and the Bank of Japan. In the United States, stronger economic growth led the Federal Reserve to end its quantitative easing program and raises the possibility of increases in interest rates next year. These opposing shifts in monetary policy had the combined effect of increasing the value of the U.S. dollar against other world currencies (as measured by the U.S. dollar index) by 8.1% from August 1 to November 17.
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AN - China National Offshore Oil Corp. (CNOOC) is willing to invest $3 billion in its existing oil and gas operation in Nigeria, the Nigerian National Petroleum Corporation (NNPC) said on Sunday following a meeting with the Chinese in Abuja.
REUTERS - Production at Libya’s giant Sharara oil field was expected to fall by at least 160,000 barrels per day (bpd) on Saturday after two staff were abducted in an attack by an unknown group, the National Oil Corporation (NOC) said.
IMF - Output grew by 3.8 percent in 2017, underpinned by a resilient non-hydrocarbon sector, with robust implementation of GCC-funded projects as well as strong activity in the financial, hospitality, and education sectors. The banking system remains stable with large capital buffers. Growth is projected to decelerate over the medium term.
IMF - Higher oil prices and short-term portfolio inflows have provided relief from external and fiscal pressures but the recovery remains challenging. Inflation declined to its lowest level in more than two years. Real GDP expanded by 2 percent in the first quarter of 2018 compared to the first quarter of last year. However, activity in the non-oil non-agricultural sector remains weak as lower purchasing power weighs on consumer demand and as credit risk continues to limit bank lending.