Afternoon analysis 11.10.2016

Mining of the OPEC countries was increasing in September. The positive ZEW data from Germany improve the sentiment for the entire euro zone. The Polish currency lost value slightly today.

OPEC sets new records

On September 28 in Algiers, the OPEC countries agreed on discussing the limits of oil mining to the level of 32.5-33 million barrels per day, on November 30 in Vienna. This would be the fist agreement which would result in a decrease in oil production since 2008. Over these years, oil prices have increased by approximately 15%. However, the International Energy Agency (IEA) published a monthly report from the oil market today. It states that the OPEC countries have increased their mining by 160k barrels per day, to a record level of 33.64 million barrels per day.

Iraq and Libya made the largest contribution to this growth. Iraq increased its production to its historically high level, while Libya re-opened its shipyards. The report also states that Russia’s oil production achieved a new post-soviet record. Meanwhile, Saudi Arabia (the largest oil producer and the OPEC member) increased its production by 20k barrels per day.

The demand for oil is expected to grow by 1.2 million barrels in day on day interpretation in 2016. The similar growth scale is estimated for 2017 as well. The growth pace continues to decline from its five-year maximum (from the third quarter of 2015) to a four-year pit in the third quarter of 2016. This has been caused by a disappearing growth in the OECD countries, as well as a slowdown in China.

The conclusions coming from the above report make the oils quotations until November 30 even more interesting. The IEA publication showed quite clearly to what degree is the above mentioned 15% increase in oil based on investors estimations regarding the announced limits by the OPEC, as well as respecting the established limits by the OPEC countries.

Sentiment in euro zone is better than expected

In yesterday’s afternoon analysis we emphasized that the ZEW sentiment indexes for Germany and the euro zone may be better than expected, due to positive Sentix indexes, trade balance, the Ifo readings and the PMI data. This data actually was better (6.2 for Germany and 12.3 for euro zone). This was the highest level for these indexes since May.

This is a positive information for the Polish economy and currency. A positive condition of the German economy has always had a positive impact on Polish economy (this is related to trade exchange and means a larger export to Germany.) However, the ZEW institute’s chairman, professor Achim Wambach takes note that, “positive impulses, which are coming from industry and export should not distract from political and economic risks, especially the risk related to the German banking sector, which currently is the largest burden for economic perspectives.”

Zloty within fluctuations range

The Polish currency remains in its previous fluctuation range. The relatively largest change can be observed on the USD/PLN (an increase by approximately 0.7% to 3.86) and the GBP/PLN (an increase to 4.75 in comparison to quotations from this morning). In the case of the dollar, this increase is a result of a stronger dollar (the EUR/USD is below 1.11), rather than a weak zloty.

Tomorrow’s events

At 13.00 (1.00 PM), the OPEC will publish its monthly report regarding the oil market for September. Taking into consideration the sudden reactions of oil in the case of any news which regard this raw material, we may expect tomorrow’s report to cause large fluctuations. This is especially taking into consideration today’s IEA report (it showed that the OPEC countries increased their production to record levels, as well as above the level which was established in Algiers.)

At 20.00 (8.00 PM), the Federal Reserve will publish the minutes from its previous meeting and it most likely will be tomorrow’s main event. Investors will try to find clues regarding the possible behavior of the Fed members at their forthcoming meetings (in November and in December). Increasing profitability of the American treasury bonds, as well as strengthening dollar, suggest that the market is expecting hawkish signs from the minutes tomorrow. This theory is confirmed by the likelihood of rate hikes (calculated by the CME Group). It increased to approximately 64% for December.