OPEC jitters offset U.S. GDP growth

Federal Reserve Chair Janet Yellen said economic acceleration is apparent, but the pace of acceleration is "disappointingly slow."
By Daniel J. Graeber Follow @dan_graeber Contact the Author   |  Nov. 29, 2017 at 10:10 AM
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Nov. 29 (UPI) -- Acceleration in the U.S. economy from the second quarter wasn't enough to shake off the OPEC jitters that sent crude oil prices slightly lower on Wednesday.

The U.S. Commerce Department said Wednesday that real gross domestic product increased at an annual rate of 3.3 percent during the third quarter, an improvement over second quarter growth of 3.1 percent.

U.S. Federal Reserve Chair Janet Yellen said in prepared remarks before a Congressional economic committee that the world's largest economy was gaining strength.

"Economic growth appears to have stepped up from its subdued pace early in the year," she said.

Higher GDP growth could be indicative of stronger demand and normally send crude prices higher, though traders on Wednesday are focused squarely on a pivotal meeting for the Organization of Petroleum Exporting Countries. At stake is the duration of a production deal eating away at the surplus in global crude oil inventories that sent oil prices tumbling below $30 per barrel early last year.

Stephen Brennock, an analyst with London oil broker PVM, said the conversation building up ahead of OPEC's meeting hasn't evolved as expected.

"Tomorrow's long-awaited meeting was meant to be a formality with an extension of existing supply curbs through the end of 2018 a virtual shoo-in," he said in an emailed market report. "This narrative has however not gone according to the script and the scene is set for tougher-than-expected policy talks."

The price for Brent crude was highly volatile in early morning trade, but moving closer to even ahead of the opening bell. Brent was down just 0.09 percent to $63.55 per barrel in the minutes before the start of trading in New York. West Texas Intermediate, the U.S. benchmark for the price of oil, was down 0.22 percent to $57.86 per barrel.

Ole Hansen, the head of commodity strategy at Saxo Bank, said an extension to an agreement that expires in March is inevitable.

"But what still remains uncertain is the duration of such a deal and also how to eventually end it without risking flooding the market with unwanted barrels," he said via email.

A long extension may trap OPEC in a market where U.S. shale producers are capitalizing on the momentum of crude oil prices. Too short of an extension could diminish OPEC's influence.

Meanwhile, buried in Yellen's remarks were tones of pessimism about the economic road ahead.

"Although the economy and the jobs market are generally quite strong, real GDP growth has been disappointingly slow during this expansion relative to earlier decades," she said.

That mirrors concerns from Angel Gurria, the secretary general for the Organization for Economic Cooperation and Development, who said Tuesday that growth was strong, but the pace of growth was relatively sluggish. Global growth, he said, moved from 3.1 percent last year to 3.6 percent for GDP this year, though that pace is unsustainable with only 3.7 percent expected next year.

"Growth has picked up momentum and the short-term outlook is positive, but there are still clear weaknesses and vulnerabilities," he said.

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