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Oil Markets would be Impacted by Fed’s Next Move: OPEC


09/12/2016


Oil Markets would be Impacted by Fed’s Next Move: OPEC
According to the latest monthly report from oil producer group OPEC, the overall health of the energy sector and the state of global growth would be determined crucially by central banks such as the U.S. Federal Reserve.
 
Imminent central bank decisions and political developments were likely "to be influential" and the trend of "moderate" global growth was likely to continue in 2016 and 2017, said the 14-member oil producing cartel in its latest September report.
 
"There are several key dynamics across the globe that are significant (to global growth) in the short-term, OPEC said on Monday before commenting on the effectiveness of central bank stimulus programs. Interest rates are already low in major economies and the effectiveness of further monetary stimulus has diminished, despite remaining crucial for some economies. Here, any decision from main central banks on monetary policies, particularly the U.S. Fed, will continue to be influential. Moreover, in most key economies the space for fiscal stimulus seems to be limited given high debt levels." it said.
 
Concerns that the Fed is about to raise interest rates when it meets on September 21-22 have resulted in a decline in international financial markets, and the comments of OPEC comes amidst such an environment. Oil trades would (which is settled in dollars) be more expensive for buyers holding other currencies if Fed does increase interest rates which would strengthen the dollar. At a time when major oil producers, such as OPEC, the U.S. and Russia, are desperate for demand to keep pace with supply that could in turn hamper global demand and consumption.
 
The energy sector, despite being harmed by lower investment as a result, could help buoy global growth and the trend of moderating global growth was likely to continue this year, the OPEC said.
 
"There are several key dynamics across the globe that are significant (to global growth prospects) in the short-term There is a considerable negative impact on global growth from the energy sector due to the sharp decline in investments, mainly in the oil and gas sector as well as lower output values," OPEC noted.
 
"So far this has not been entirely compensated by positive effects from consumption. Any stabilization in the crude oil market in coming months could provide positive support to overall economic activity," OPEC said.
 
OPEC stuck to its prediction that oil markets are continuing to rebalance and remained confident on oil demand growth despite the moderate global growth levels. "Despite moderate global economic growth, recent data shows better-than-expected oil demand in some of the main consuming countries. This, along with a potentially improving oil supply picture, would contribute to a reduction in the imbalance of market fundamentals in the coming months," it said.
 
There was limited scope for governments to stimulate growth, the group warned. "In most key economies the space for fiscal stimulus seems to be limited given high debt levels. Finally, political developments are becoming increasingly relevant – ranging from elections in several countries to fiscal policy decisions, as well as the implementation and possible impact of Brexit (the U.K.'s decision to leave the EU)," it said.
 
(Source:www.cnbc.com) 


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