WTI posts small losses on Friday as its buoyancy lags behind Brent’s as the increase in US output limits advance. The spread between the two grades remains high, indicating different efforts of OPEC and US shale companies in the fight against market surplus. OPEC and some other countries agreed to reduce production by 1.8M barrels by the end of March. The process of reducing the overabundance is rather slow, therefore OPEC is considering the possibility of extending the pact by the end of 2018.
US output is likely to decline because of the hurricanes Harvey and Irma, which limited consumer spending and the pace of construction, but internal drivers of growth were likely not affected. Today, GDP data will be published but weak figures probably will not be taken seriously by investors, since the temporary deviations from the trend do not reflect the long-term picture of the development of American economy.
The main point for speculation is the impact of hurricanes on consumer spending, which is about 2/3 of GDP of the US economy. Due to income cuts and declines in retail sales, consumption may fall from a shining 3.3% in the second quarter to 2.5% or lower in the third.
Storms also hit investments in non-residential structures, such as oil rigs. This may not affect short-term oil production in the US, but long-term prospects for shale oil may look very favorable for OPEC.
German stocks rose to a record high on Thursday, while European stock indexes are planning new ascents, as the ECB made statements about the future of the asset-buying program.
Although the regulator has promised to cut purchases to 30 billion euros a month since January, the terms of the program's extension have not been determined. The ECB also allowed a backtracking in program volumes what caused money managers hitting sell button on Euro .
Bond yields declined in the European debt market, the flow of capital into US assets on growth expectations caused collapse of the euro from 1.18 to 1.16 on Friday. The European currency could also suffer due to the deteriorating situation in Catalonia, where Madrid is going to force the dissolution of the Catalan government, which can cause public unrest.
This analysis is provided as general market commentary and does not constitute investment advice.