Oil prices rocketed Monday as major producers shocked the market with a surprise supply cut of more than a million barrels per day. Equities largely gained after data revealed that US and European inflation continued to decline in November.
The OPEC+ cartel’s decision, though, stoked worries about a new price increase that might force central banks to raise interest rates.
Following the Saudi Arabia, Iraq, United Arab Emirates, Kuwait, Algeria, and Oman decrease, which was the largest since the group reduced two million barrels per day in October, both major crude contracts rose by almost 8% at one point.
It happened after Russia decided to keep a production cut of 500,000 barrels per day in place and in defiance of US requests to boost output.
According to the official Saudi News Agency, a Saudi energy ministry official “emphasised that this is a preventive move aimed at supporting the stability of the oil market.”
Over the past year, crude prices have decreased as supply concerns generated by sanctions on Russia over its invasion of Ukraine have outweighed anxieties about a potential recession brought on by increasing borrowing rates.
“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.
Experts predicted that the decision would be detrimental to markets, which had risen in recent weeks on hopes that the latest upheaval in the banking sector would prompt the US Federal Reserve to halt its rate-hike program earlier than anticipated.
“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.”
Asia Is In A Positive Mood
Yet, there was a positive vibe on Asian trading floors as most markets followed a significant surge on Wall Street in response to the news that price increases in the US and the eurozone had slowed down even further.
The chosen inflation indicator of the Fed, the PCE Price Index, decreased from 5.3 percent in January to 5.0 percent in February.
While all was going on, prices in the eurozone increased 6.9 percent in March, exceeding expectations despite February’s 8.5 percent increase.
Hong Kong was flat, Seoul, Bombay, and Wellington fell, while Shanghai, Sydney, Singapore, Manila, and Jakarta all increased.
Tokyo increased despite the carefully regarded Tankan survey by the Bank of Japan showing a decline in confidence among the biggest firms in the nation to its lowest point in more than two years.
Frankfurt, London, and Paris all awoke early.
US futures fell as Treasury rates increased amid speculation that the Fed will continue to tighten monetary policy.
“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.
