Oil prices surged on Monday after Saudi Arabia and other OPEC+ producers announced a surprise round of output cuts, a potentially ominous sign for global inflation just days after a slowdown in U.S. price data had boosted market optimism, according to Reuters.
Brent oil futures jumped $3.94 to $83.83 a barrel on news output would be cut by around 1.16 million barrels per day. U.S. crude climbed $3.84 to $79.51, but was off its early peak of $81.69.
The change comes before a virtual meeting of an OPEC+ ministerial panel, which includes Saudi Arabia and Russia.
“The involvement of the largest OPEC+ members suggests that adherence to production cuts may be stronger than has been the case in the past,” said Vivek Dhar, an energy analyst at CBA.
“That means that oil markets may potentially see around 1% of global oil supply or more being curtailed from May.”
The latest reductions could lift oil prices by $10 per barrel, the head of investment firm Pickering Energy Partners said on Sunday.
Goldman Sachs lifted its forecast for Brent to $95 a barrel by the end of the year and to $100 for 2024.
“Today’s surprise cut is consistent with the new OPEC+ doctrine to act pre-emptively because they can without significant losses in market share,” Goldman said.
“While surprising, this cut reflects important economic and likely political considerations.”
The surge in energy costs somewhat overshadowed Friday’s slower reading for core U.S. inflation, which had seen Wall Street end the month on a strong note.
S&P 500 futures dipped 0.3% on Monday, while Nasdaq futures lost 0.6%. EUROSTOXX 50 futures eased 0.1%, while FTSE futures added 0.1%.