Opec meeting to guide oil-related assets this week

Crude oil prices have tumbled by almost 60 per cent compared with their peak back in 2014. Efforts made by global producers to reinflate its prices have been futile so far. In yet another attempt to lift prices, the Organisation of the Petroleum Exporting Countries (Opec) has scheduled an informal meeting to be held from today to Wednesday.

Given that little has been achieved in past meetings, market watchers may fear that history could replay itself.

This concern may have some validity: Iran’s persistent refusal to cap production has previously resulted in standstill outcomes in past meetings.

Of note, Iran has voiced its intention to lift crude production and recent rumours that Nigerian and Libyan oil supply may rise in the foreseeable future may further diminish hopes for a concerted agreement. Further inaction by Opec to come to an agreement on limiting output may cap potential upside in oil prices and result in additional bouts of volatility in oil-related assets.

Lower oil prices would in turn lead to lower imported inflation, keeping inflationary pressures in Singapore low. However, not all is lost for the oil bulls.

Even with possible inaction by Opec in its upcoming meeting, the talks may still serve as an avenue for an eventual agreement in its official meeting in November.

More importantly, from the global supply and demand perspective, the rebalancing of the current supply glut should persist into next year.

This, in turn, should be a persuasive force to lift crude futures above its US$50 (S$68) per barrel handle then. More recently, the inaction by the Federal Open Market Committee to raise rates at its latest meeting gave rise to a cheaper greenback and consequently higher crude oil prices, given its dollar-denominated status.

This week, market-watchers should also pay close attention to a slew of economic data including growth prints from the United States, Canada and the United Kingdom. US-centric data ranging from initial jobless claims, personal spending and home sales will also shape sentiment for the week.

In Asia, China’s Caixin Purchasing Manager Index will give hints on the health of its manufacturing industry, while Singapore’s industrial production data will be a crucial print leading to the central bank meeting next month.

Barnabas Gan is an economist at OCBC Bank.