OPEC meets with non-OPEC producers. UK Court reviews May appeal. ECB to extend bond buying. Trump mulls candidate for Sec. of State. Ghana elects new president. All in The Week Ahead.
OPEC needs Russia on board to keep prices up
OPEC has a deal to curb production and bring oil prices back up. Now the organisation needs others to sign on and a clear way to ensure compliance. On Friday and Saturday, OPEC is meeting with Russia and other non-OPEC members in Vienna to clarify their commitment to the production cut. The deal hinges on non-OPEC producers to sign on.
On November 30 OPEC members agreed to reduce oil output by 1.2 million barrels a day starting January 1 2017 – the first of its kind since 2008. Brent crude prices jumped more than 10% to 54.4 $/barrel by Friday afternoon after the announcement of the deal. Deficit-plagued Gulf countries like Saudi Arabia and Kuwait are bearing the brunt of the cut, while less incentivised members like Iraq are cutting less and Iran was permitted a token increase in production after suffering from sanctions.
Russian president Vladimir Putin was quick to take credit for brokering the OPEC deal between Saudi Arabia and Iran. Russia has already committed to gradually cutting oil production by 300.000 barrels per day (bpd) in the first half of 2017. That is half of the entire non-OPEC commitment. It is the first OPEC production curb for Russia to join since 2001.
The non-OPEC oil behemoth is on the safe side though. Energy minister Alexander Novak stated that the Kremlin will use November through December production rates as benchmark for its cut. Russia reached record average output of 11.21 million bpd in November – the highest since the fall of the Soviet Union. 300.000 is not much given a 500.000 bpd increase in Russian production since August this year.
Compliance is not OPEC members’ strong suit either. Expect a lot of jitters in brent prices as hints of the deal’s implementation emerge from the group and US shale produces adjust to higher prices, effectively capping the price increase.
U.K. Supreme Court to hear challenge to Brexit ruling
On Monday, the United Kingdom’s Supreme Court will begin hearing arguments in the legal fight over parliaments role in approving Britain’s exit from the European Union.
Prime Minister Theresa May is challenging a lower court ruling holding that parliamentary approval is required for the British government to trigger Article 50 of the Lisbon treaty to formally exit the EU. May wanted to invoke Article 50 by the end of March, but a drawn out legal proceeding and parliamentary vote could delay that process.
It is unlikely that Parliament would overrule the will of the people who voted to leave the EU in a referendum earlier this year. However, the delay and parliamentary vote could subject the process to greater scrutiny and force Prime Minister May to more clearly outline how she envisions the long-term EU-U.K. relationship.
ECB stimulus package likely extended
The President of the European Central Bank, Mario Draghi, will meet his Governing Council on Thursday morning and announce their decision on interest rates and the Bank’s stimulus programme in the afternoon.
While inflation accelerated to 0.6% on year in November following 0.5% increase in October, the Bank is likely to leave rates unchanged for now, as core inflation remains unchanged at 0.8%. The Council has stated at previous meetings, that it wants to see a sustained pickup in inflation.
However, the ECB stimulus package through bond buying to the tune of EUR 80 billion a month (EUR 1.7 trillion in total) is likely to be extended at least for another 6 months to September 2017. That is especially the case if Italy’s constitutional referendum on Sunday December 4 causes markets jitters and Mr. Draghi feels the need to calm some nerves.
Trump to continue filling cabinet, including Secretary of State
Throughout the week President-elect Donald Trump will continue to fill key positions in his cabinet. On Monday, he is expected to finalize his decision to nominate retired General James Mattis as Secretary of Defense. Mattis is a widely respected general with support from both political parties.
However, his nomination is not without controversy as the position of Secretary of Defense is intended to be a civilian post that has rarely gone to a former top-military figure. Mattis will need to obtain a waiver from Congress to serve in the role.
Trump is also nearing a decision on the critical Secretary of State position, with an announcement possible this week. Leading contenders include former presidential candidate Mitt Romney, former New York mayor Rudi Giuliani, and retired general David Petraeus. However, recent reports suggest that Trump may be broadening his search to other less well-known candidates.
Ghana to hold general elections
On Wednesday, Ghana will hold a general election to determine its next President and members of Parliament. Members of parliament are elected in a single round first-past-the-post voting system, while the president is elected using a two-round system. The electoral process has been marked by allegations of irregularities and saw the election commission disqualify 7 presidential candidates.
The two leading candidates are incumbent President John Dramani Mahama of the NDC and Nana Akufo-Addo of the New Patriotic party. Opinion polls have been close, with some showing a small lead for Mahama. Mahama is a long-time politician who initially rose to the presidency after the death of then president John Atta Mills. He narrowly won the 2012 presidential election over Akufo-Addo.
Ghana is one of the most politically stable and prosperous west African countries and its leader has significant regional influence, including over the Economic Community of West African States, which Mahama formerly chaired.
The Week Ahead provides analytical foresight on the economic consequences of upcoming political developments. Covering a number of future occurrences across the globe, The Week Ahead presents a series of potential upside/downside risks, shedding light on how political decisions affect economic outcomes.