SYDNEY/LONDON, April 3 (Reuters) – Oil prices rose on Monday after Saudi Arabia and other OPEC+ producers announced a sudden cut in their output targets, weighing on global inflation.
Brent oil futures were set for their biggest daily percentage gain in a year after news OPEC+ rose 5.3% to $84.12 a barrel and cut output by about 1.16 million barrels a day. US crude rose 5.75% to $79.99.
Goldman Sachs raised its forecast for Brent to $95 a barrel by the end of the year and $100 a barrel by 2024 following the oil output shift announced on Sunday, a day ahead of a virtual meeting of the OPEC+ ministerial group, which includes Saudi Arabia and Russia. .
“I think the coalition wants to make sure that (oil) surpluses don’t last into the second half of 2023, because they know that’s when most of the economic weakness is going to come,” said Sami Saar, chief economist at Lombard Odier. .
“This indicates that the global economy is slowing down, which is not bad news, as this is mainly a self-inflicted slowdown by the US and Europe to ensure that inflation is brought closer to target.”
Central banks have raised interest rates rapidly over the past year in an effort to bring inflation under control.
Action by oil producers spilled over into stock markets. Oil majors BP ( BP.L ), Shell ( SHEL.L ), TotalEnergies ( TTEF.PA ) and Eni ( ENI.MI ) all rose nearly 4%, lifting the European oil and gas index ( .SXEP ) 3.7%, from November. Then it hit its biggest one-day gain.
Energy-sensitive stocks fell, with British Airways parent IAG ( ICAGL
Britain’s commodities-heavy FTSE 100 (.FTSE) rose 0.7%. Various moves on a regional and global basis canceled each other out with the European STOXX 600 (.STOXX) and MSCI’s 47-country All World Index (.MIWD00000PUS) trading around flat.
A surge in energy costs overshadowed a slower reading for core U.S. inflation on Friday.
S&P 500 futures fell 0.2% on Monday, while Nasdaq futures lost 0.7%. MSCI’s broadest index of Asia Pacific shares outside Japan (.MIAPJ0000PUS) lost 0.25%, underperforming tech-heavy benchmarks such as Hong Kong (.HSI) and Korea (.KS11).
Fewer food cuts
As ING FX strategist Francesco Pesol said, OPEC+’s move also played out in currency and rate markets, which “raised fears that inflation will be a long-term problem for central banks.”
“Extremely-volatile market pricing for the central bank’s rate path is again set to be very vulnerable,” he added.
The yield on US two-year Treasuries rose 4 basis points to 4.11%, while Fed funds futures tempered expectations for rate cuts later in the year.
The market raised the probability of the Federal Reserve hiking rates in May to 61% from 48% on Friday, and a cut of 38 basis points by the end of the year.
That helped the dollar rise 0.6% to 133.6 against the Japanese yen, while the euro slipped 0.5% to trade flat at $1.0833. Rising oil prices are bad news for Japan’s trade balance, as it imports most of its energy.
Gold was down 0.2% at $1,963 an ounce, boosting the dollar.
The outlook for US rates could be affected by ISM manufacturing and several jobs data coming out this week, most notably Friday’s non-farm payrolls report. The impact of Friday’s report may be muted by the Easter holiday.
Central banks in Australia and New Zealand hold policy meetings this week, with the latter expected to raise rates another quarter point to 5.0%.
Markets are betting that the Reserve Bank of Australia (RBA) will pause its tightening campaign on Tuesday after 10 straight hikes. ,
Reporting by Wayne Cole in Sydney and Alun John in London; Editing by Sri Navaratnam, Stephen Coates, Kenneth Maxwell and Susan Fenton
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