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Matt Smith

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Oil Gains Ahead Of OPEC Meeting, Dollar Caps Growth Potential

Thirty-three years after Michael Jackson’s sixth studio album was released, and this week is set to be an absolute thriller. What starts off rather calmly today with the closing out of November, culminates with a frenetic Friday and a cracking combination of nonfarm payrolls (aka, official U.S unemployment data) and the small matter of an OPEC meeting in Vienna.

While little is expected in terms of material changes out of the oil cartel, rhetoric from the various ministers and delegates this week will be scrutinized and dissected with an almost surgical focus.

Kicking off the week, we had dastardly data out of Japan in the form of construction orders, which fell a whopping 25% YoY. Onto Europe, and German retail sales surprisingly fell by 0.4% in October, meaning they were up a mere +2.1% YoY, while Spain came in with a mucho more impressive print of +5.8% (YoY). Money supply (M4) in the UK increased, stoking hopes of inflation for Blighty, while preliminary inflation data for Italy returned to negative territory in November, down 0.4 percent on the prior month.

Perhaps the most heartening print overnight was from India. Q2 GDP came in at +7.4 percent, better than the expected +7.3 percent (although Q1 was revised down to 7.0 percent). In the U.S, we see pending home sales and regional manufacturing data in the form of the Chicago PMI, before the floodgates open tomorrow with a wave of new data points. Related: This British Bank Is Backing The Bullish Case For Oil

India GDP, % (source: investing.com)

As the UN climate conference kicks off in Paris today, the 8-14 day outlook for the US is a ray of sunshine for those of us who are not fans of winter (*raises hand*). Above-normal temperatures across the board next week through to December 13th mean El Niño is keeping true to his word thus far this winter. The January natural gas contract is hence at a lowly ~$2.20/MMBtu, although parts of the country are experiencing the throes of winter: California recorded a low of -11 degrees over the weekend. Related: Big Oil: Which Are The Top 10 Biggest Oil Companies?

Today signals the final day of the 2015 Atlantic Hurricane Season, which has passed with very little impact. We only experienced two major hurricanes this year, while Tropical Storm Bill was the only storm to make it into the Gulf of Mexico (in June).

Even if we had experienced a much more hectic hurricane season, the changing dynamics of U.S oil production mean we would have seen a much lesser impact to prices than seen in prior years. Due to rising onshore shale oil production (h/t Bakken, Permian, Eagle Ford), the Gulf of Mexico accounted for only 16 percent of U.S production last year, down from a much higher 27 percent in 2003.

As mentioned earlier, we have a doozie of a week ahead of us. Oil is seeing some buying interest to start the week, and to close out the month. Nonetheless, as the ECB looks to announce stimulus measures this week – in the same month as the U.S looks likely to raise rates – the US dollar should continue to garner support, and the crude complex should continue to face headwinds. Related: Why Low Oil Prices Won’t Cure Low Oil Prices

While the impending OPEC meeting on Friday is set to keep crude skittish, the below graphic serves to highlight increasing supply from the cartel. Those countries who haven’t been able to boost production – namely Venezuela and Libya – is more down to extraneous factors such as political instability and a lack of investment than a lack of will.

By Matt Smith

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