Oil prices surged on Monday after major producers announced a surprise output cut of more than a million barrels per day. The decision by OPEC+ cartel fueled fears of another price surge, putting pressure on central banks to raise interest rates.
As per reports, both major crude contracts rose over 6% at one point after Saudi Arabia, Iraq, the United Arab Emirates, Kuwait, Algeria, and Oman dropped the most since the organisation cut two million barrels per day in October. It comes on the heels of Russia’s decision to extend a 500,000-barrel-per-day cut, and despite American efforts to increase output.
According to reports, a Saudi energy ministry official stated that "this is a preventive action aimed at sustaining the oil market's stability."
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Oil prices have fallen in the last year as concerns about a probable recession driven by increasing borrowing costs have countered supply concerns created by Russia’s invasion of Ukraine. Tapas Strickland of National Australia Bank said “The production cut, coming at a time of uncertain global demand, plainly suggests OPEC was not satisfied with the trend in the oil price, which has declined in previous months”.
“This could be a nasty shock for equities investors, as markets imply a Goldilocks view of reduced discount rates but no recession," said Ronald Temple of Lazard Ltd.
Experts believe the decision will be a setback for markets, which have risen in recent weeks on hopes that recent banking sector crises may push the US Federal Reserve to terminate its rate hike campaign sooner than expected.
The PCE Price Index, the Fed's favoured gauge of inflation, fell to 5.0 percent year on year in February from 5.3 percent in January.
Meanwhile, European prices grew 6.9% in March, down from 8.5% in February, exceeding expectations as energy prices fell.
Shanghai, Sydney, Singapore all rose in early trade, but Hong Kong fell after last week's rally. Seoul and Wellington also fell.
Despite the Bank of Japan's carefully regarded Tankan survey, which showed confidence among the country's largest manufacturers at its lowest level in more than two years, Tokyo climbed. Conversely, futures in the United States sank as Treasury rates jumped amid anticipation of further Fed monetary tightening.
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