Interest rates rose to 1.25% last quarter. Theoretically this would imply a strengthening of the dollar. However, when theory meets reality, the latter has a tendency of mocking the former. As in many other cases, this time reality went the complete opposite way, and the dollar depreciated. While it is impossible to prove causality, there is at least a correlation. We do not asses that the rate hike in Q2 has had much effect in financial markets…yet.
At the last meeting the U.S. central bank, FED, did not raise interest rates. Market expectations are currently for a rate at 2% during 2018. A strengthening dollar should thus be, theoretically, in the horizon. Should reality agree with theory, a strengthening dollar, would likely be less bullish for oil prices. Ceteris Paribus that is.
On the other hand U.S. macro figures suggest a healthy and improving economy (which is why the FED projections are for a rate hike in the first place), which in turn should mean increased demand for oil.
All in all we assess the U.S. situation as slightly bullish for oil prices.
Nothing significant has happened on the Chinese economic front. The downgraded credit ratings do not seem to have had effect on Chinese oil consumption or production. What does look different is the macro-figures. GDP, Caixin PMI and regular PMI are all looking bullish compared to last quarter.
The Chinese financials and monetary circumstances will likely not have effect on the oil market during next quarter, unless some extraordinary event occurs. Chinese financials are assessed neutral bearing in mind that Chinese growth is still among the highest in the world.
During Q3 India has not experienced the expected positive effects of the demonetization program mentioned in our last report. The program has been assessed a failure and the economy (population) took longer than expected to settle after the event.
The quarterly GDP has grown less rapidly since late 2016. Looking at the smaller economic indicators we see that the Fuel Wholesale Price Index (WPI) has increased during Q3, as have CPI and Nikkei Market PMI. Thus, it would not be unreasonable to expect the GDP growth rate to stabilize.
The process of implementing the new monetary structure in India has not accomodated growth, but we are possibly starting to see the trend turning into a slightly more bullish scenario according to above-mentioned. However, it will likely take a while for the full effects to spill over to the oil market. It is less likely that we will see a significantly increased oil demand in India in Q4.
As there has been no major news accomodating structural changes, we are left with U.S. growth appearing slightly more bullish and India's growth not looking to slow any further.