Wednesday, May 22, 2024

Oil prices soar as producers unveil shock output cut

Oil prices soar as producers unveil shock output cut
April 3, 2023 Web Desk

HONG KONG (AFP) - Oil prices soared Monday after top producers unveiled a shock output cut of more than a million barrels per day, while equities mostly rose after data showed US and European inflation eased further last month.

However, the decision by the OPEC+ cartel fanned concerns about a fresh spike in prices that could put pressure on central banks to push interest rates higher. Both main crude contracts jumped around eight percent at one point following the cut by Saudi Arabia, Iraq, the United Arab Emirates, Kuwait, Algeria and Oman, which was the biggest since the group slashed two million barrels per day in October.

It came on top of a Russian decision to extend a cut of 500,000 barrels per day, and in spite of US calls to increase production. A Saudi energy ministry official "emphasised that this is a precautionary measure aimed at supporting the stability of the oil market", according to the official Saudi Press Agency.

Crude prices have come down over the past year as concerns about a possible recession caused by higher borrowing costs have offset supply worries sparked by sanctions on Russia over its invasion of Ukraine. "The production cut, coming at a time of an uncertain global demand environment clearly shows OPEC was not happy with the movement in the oil price which had fallen over recent months," said National Australia Bank's Tapas Strickland.

Analysts said the decision could deal a blow to markets, which had rallied in recent weeks on optimism that the recent banking sector turmoil could force the US Federal Reserve to end its rate hike drive sooner than expected. "For equity investors, this could be a rude awakening, as markets imply a Goldilocks outlook of reduced discount rates but no recession," said Lazard Ltd's Ronald Temple. "The OPEC+ production cut is another reminder that the inflation genie is not back in the bottle."

Upbeat mood in Asia 

Still, the mood on Asian trading floors was upbeat, with most markets tracking a strong rally on Wall Street in response to news that US and eurozone price rises had slowed further. The PCE Price Index, the Fed's preferred measure of inflation, slowed to an annual rate of 5.0 percent in February from 5.3 percent in January.

Meanwhile, eurozone prices rose 6.9 percent in March, well down from 8.5 percent in February, beating expectations as energy prices eased. Shanghai, Sydney, Singapore, Manila and Jakarta all rose, though Hong Kong was flat, while Seoul, Mumbai and Wellington slipped.

Tokyo rose despite the Bank of Japan's closely watched Tankan survey showing confidence among the country's largest manufacturers falling to its lowest level in more than two years. London, Paris and Frankfurt rose in the morning.

US futures dipped as Treasury yields climbed on bets of further monetary tightening by the Fed. "As we look ahead to a new month and a new quarter, and last week's rebound the main question is whether we've left the trials and tribulations of March in the rear-view mirror or whether last week was the eye of the storm before the onset of further volatility," said CMC Markets analyst Michael Hewson.