Steady oil prices pushing global economic growth

Mazino Dickson, Abuja

Buoyed by steady oil prices, the forecast for global economic growth rose by 3.3%, compared to growth in 2016 of 3.0%.

These facts were revealed in the OPEC monthly oil market report for May, 2017.

The report also noted that the recent growth dynamic in the global economy has been confirmed with the exception of the US, which is still expected to rebound in the remainder of the year.

While US growth remains at 2.2%, Euro-zone growth in 2017 was revised to 1.7% from 1.6%.

Japan’s 2017 growth forecast remains at 1.2%. China’s 2017 growth was also revised higher to 6.5% from 6.3%, while India’s forecast remains at 7.0%. Russia’s and Brazil’s 2017 growth forecasts remain unchanged at 1.2% and 0.5%, respectively.

Crude oil futures recovered on the high conformity by OPEC and non-OPEC with voluntary production adjustments, and expectations for an extension to year-end; however, upward potential was seen as limited by resurgence in oil output, particularly in the US.

The OPEC Reference Basket (ORB) rebounded more than 2% in April to a monthly average of $51.34/b.

Most of the uplift occurred earlier in the month on increasing expectations that voluntary OPEC and non-OPEC production adjustments will be extended into the second half of this year.

Higher OPEC and non-OPEC conformity adjustments, coupled with limited seasonal stock draws due to higher refinery runs and lower US imports, have further supported prices.

Commodity markets

Rising oil prices have also had an impact on commodity markets. Energy commodity prices generally increased, while coal prices advanced due to supply disruptions caused by cyclone Debbie in Australia.

Among non-energy commodities, agricultural prices were led down by lower prices of vegetable oils, while metals prices were weakened by the restart of production in mines previously affected by strikes and a slower pace of expansion in the manufacturing sectors of China and the US.

Average gold prices advanced during the month following soft economic activity in 1Q17 in the US, which translated into lower real interest rate expectations in the country.

Agricultural commodities were generally weak for the second consecutive month, led by sharp drops in food prices, but especially in vegetable oils, due to continuing oversupply of oilseeds.

Wheat prices increased at the end of the month due to frost in the US central Great Plains.

Sugar prices dropped sharply also due to lower expected import requirements from India and stable expected output in Brazil despite lower sugar cane output, as the industry takes advantage of favourable sugar prices and exchange rate.