Oil prices rose on Monday after major producers announced shocking production cuts of more than 1 million barrels, but mainly data showed inflation in the US and Europe eased further over the past month. However, the OPEC+ cartel’s decision may raise fears of renewed price hikes and force the central bank to raise rates.
Both main crude contracts jumped almost six% 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.
According to the official Saudi Press Agency-
“A Saudi energy ministry official emphasised that this is a precautionary measure aimed at supporting the stability of the oil market” .
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”.
cc: Punch Ng
