Oil prices experienced a significant increase on Monday following the announcement of unexpected output cuts by Saudi Arabia and other OPEC+ oil producers, potentially signaling trouble for global inflation. The news comes shortly after a recent deceleration in US price data had raised market optimism.
Brent oil futures saw a near-$6 increase, reaching $85.54 per barrel in early trading, due to an approximately 1.16 million barrels per day output cut. Concurrently, US crude rose by $5.22, settling at $80.89. The surprising development occurred just one day before a virtual OPEC+ ministerial panel meeting, which includes Saudi Arabia and Russia, and was anticipated to maintain the 2 million bpd cuts already in place through 2023.
Pickering Energy Partners' head of investment predicted that the latest reductions could cause oil prices to rise by $10 per barrel. Goldman Sachs has subsequently raised its Brent forecast to $95 a barrel by year-end and $100 for 2024.
The spike in energy costs somewhat overshadowed Friday's slower reading for core US inflation, which had contributed to a strong finish for Wall Street at the end of the month. S&P 500 futures dipped by 0.3% early on Monday, while Nasdaq futures experienced a 0.4% decline.
Nikkei futures indicated opening gains, albeit lower than their peak. Treasury futures experienced a slight decline, while Fed fund futures scaled back expectations for rate cuts later this year. The probability of the Federal Reserve increasing rates by a quarter point in May rose from 48% on Friday to 57%.
The dollar gained 0.3% against the Japanese yen, reaching 133.21, while the euro fell to $1.0817. The surge in oil prices presents challenges for Japan's trade balance, as the country imports a majority of its energy. The increase in the dollar and yields resulted in a 0.25% decrease in gold prices, settling at $1,963 an ounce.
