Week in Review: Are OPEC’s Extended Supply Cuts Merely a Band-Aid Over the Oil Glut?

“Where next for oil prices?” Stuart Burns had asked on Monday. In the short term, that would be downwards.
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Yesterday the Organization of the Petroleum Exporting Countries (OPEC) met in Vienna and decided to extend supply cuts for another nine months, until March 2018. That is what was expected, but oil prices responded by dropping quite a bit, Reuters reported, by roughly 5%.
The price of oil has indications beyond, well, oil. “Oil prices are a proxy for energy prices, and a rising oil price can be supportive for energy intensive metals like aluminum,” Burns wrote. “A rising oil price is also taken as a proxy for rising industrial demand – a bullish indicator that global growth is strong. A falling price, on the other hand, should be good for consumer spending as it keeps more money in drivers’ pockets and lowers the cost of goods sold for companies far and wide.”

Where Next for the U.S. Dollar?

Another driver of metal prices is the dollar. This past week, Raul de Frutos looked at the movement of the U.S. dollar, which recently hit a seven-month low. What is the reason for this drop?
“First, the dollar had steadily risen for three consecutive months,” de Frutos wrote. “It’s not uncommon to see profit-taking after such an increase. But there are also some fundamental reasons behind this sell-off.”
De Frutos continued: “Selling intensified after the recent political turmoil around President Donald Trump as investors worry over political stability in the U.S. Investors also worry that under these political turbulences, the Trump administration will struggle to implement the pro-growth initiatives that markets had taken for granted. Finally, the euro appreciated against the dollar as political risks in Europe eased following the French elections.”

US Dollar Index could bounce back up soon. Source: MetalMiner analysis of stockcharts.com data

Hiring, Hiring!

Let’s end with some rosy thoughts. “I envision the emigrating jobs huddled together for warmth on a seaworthy vessel, with Shanghai getting smaller in the distance as the Pacific waves toss the boat ever closer toward Long Beach,” Taras Berezowsky wrote this week, before concluding, “If only it were that poetic.”
What’s that? Emigrating jobs? Long Beach? You read right. According to the Reshoring Institute’s 2016 Data Report, “in comparison to 2000-2003, when the United States lost, net, about 220,000 manufacturing jobs per year to offshoring, 2016 achieved a net gain of 27,000.”
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However, as Reshoring Institute Founder Harry Moser told Berezowsky, “Major policy changes will have to be made or improved to continue the reshoring trend… the U.S. should aspire to host conditions like those in Germany… including a supportive government, VAT, low healthcare costs, and an appreciation of the benefit of local sourcing.”

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