OPEC still has work to do

The announcement that OPEC+ will deepen output cuts by 0.5m bpd in the first quarter of 2020 boosted oil prices this week. While the decision means that the market will be a bit tighter next year than we had anticipated, we think the drop in supply won’t be as dramatic as the headline suggests. This is because many members are likely to continue to produce above quota. As such, unless we see improvements in compliance, we are sticking with our forecast for the price of Brent to rise to $70 per barrel by end-2020. Meanwhile, other industrial commodity prices failed to benefit from the release of some positive manufacturing surveys in China and the US. The decision by President Trump to impose tariffs on steel and aluminium imports from Brazil and Argentina spurred concerns that the US will go ahead with “List 4” tariffs on Chinese imports, which weighed on industrial metals prices. • The aftermath of the OPEC+ meeting will continue to drive oil prices next week. Otherwise, commodity prices are unlikely to be significantly affected by the Fed and ECB meetings (on Wednesday and Thursday respectively). We expect both central banks to keep their policy setting unchanged, as is widely anticipated by the markets. Instead, prices may get a lift from the release of Chinese trade figures for November (Sunday), if the recent improvement in manufacturing conditions translated into higher commodity imports.