Oil production cuts cause prices to surge

By: Miguel A. Rodriguez

10:05, 04 April 2023

DMO 04.04.2023 article image.jpg

Markets focus on whether further oil production cuts by the Organization of the Petroleum Exporting countries and allies, known as OPEC+, could be in the cards as a strategic move to bring prices up at a time when global demand is falling. 

Markets were affected by Saudi Arabia and the Gulf states' decision to reduce oil output by 1 million barrels per day yesterday. 

WTI oil opened with a $6 bullish gap, but its climb was halted at the 81.70 reference level. Crude oil fluctuated around the $80 mark during the afternoon after easing back somewhat from its highs. 

Analysts were generally concerned that the OPEC+ nations would implement a plan of future production cuts as global demand declines to drive up the price of crude oil. The major investment banks have published papers in which they forecast rises of $100 or more. 

Related Article: Oil ETFs 

Some economic media outlets describe this choice as a reaction to the US government's energy strategy, which has involved releasing oil from its strategic reserve to drive down prices. As a result, this could be considered to be a political response rather than one that stems from the need to maintain a balance between supply and demand on the market. 

In any case, it is believed that the impact that an increase in oil prices may have on inflation would be minimal. It is important to keep in mind that the inflation figure that excludes the cost of food and energy – core inflation - is the one that is most resilient to decreases. Thus, it is not anticipated that the impact on monetary policy will matter. 

Related Article: US Markets 

In fact, after a brief gain at the start of the day fueled by the increase in oil prices, treasury yields later fell by about 5 basis points on the 10-year bond, returning to lower levels. 

The market interest rates decreased as a result of the ISM manufacturing Purchasing Managers’ Index (PMI) data, which came in at 46.9, which was below expectations. This data's price and employment components were both down from the previous month, which raised hopes for weaker non-farm payroll figures that would ease the Federal Reserve's pressure to hike interest rates. 

The US Dollar suffered losses on a worldwide level as a result of current interest rate expectations. 

Following a decline on Friday, that was mostly brought on by the Dollar's gain due to capital inflows at the conclusion of the quarter, the EUR/USD pair increased 100 pips, just above 1.0900. 

 

Interfaz de usuario gráfica, Gráfico

Descripción generada automáticamente
 

Sources: Bloomberg, Reuters 

Share this article

The information presented herein is prepared by CAPEX.com/eu and does not intend to constitute Investment Advice. The information herein is provided as a general marketing communication for information purposes only and as such it has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is not subject to any prohibition on dealing ahead of the dissemination of investment research.                                                                                                                            Users/readers should not rely solely on the information presented herewith and should do their own research/analysis by also reading the actual underlying research. The content herewith is generic and does not take into consideration individual personal circumstances, investment experience, or current financial situation.Therefore, Key Way Investments Ltd shall not accept any responsibility for any losses of traders due to the use and the content of the information presented herein. Past performance and forecasts are not reliable indicators of future results.