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OPEC+ Output Cuts Cause Oil Price Surge, Affecting U.S. Inflation Outlook

Unexpected OPEC+ output cuts led to a surge in oil prices, raising concerns about global inflation and impacting the U.S. inflation outlook.


Oil Prices Soar After Unexpected Output Reduction

Oil prices experienced a significant increase on Monday following an unanticipated round of output cuts announced by Saudi Arabia and other OPEC+ oil producers. This development raises concerns for global inflation, particularly shortly after a recent decline in U.S. price data, which had initially improved market sentiment.

Brent Oil Futures and U.S. Crude Climb on Output Cut News

Brent oil futures skyrocketed nearly $6, reaching $85.54 a barrel, as a result of the announcement that output would be reduced by approximately 1.16 million barrels per day. Concurrently, U.S. crude climbed $5.22 to $80.89.

OPEC+ Ministerial Panel Meeting Expected to Maintain Cuts

The output cut announcement occurred just one day before a virtual OPEC+ ministerial panel meeting, which was anticipated to maintain the existing 2 million bpd cuts through the end of 2023. According to the head of Pickering Energy Partners, the new reductions could increase oil prices by $10 per barrel.

Goldman Sachs Raises Brent Oil Price Forecast

Goldman Sachs has adjusted its predictions for Brent oil prices, now forecasting a rise to $95 a barrel by the end of the year and $100 for 2024.

Energy Cost Surge Dampens U.S. Inflation Optimism

The spike in energy costs has tempered the positive response to Friday's slower core U.S. inflation reading, contributing to a strong month-end performance on Wall Street.

Market Reactions: Futures, Treasury, and Dollar

S&P 500 futures dipped 0.3% early Monday, with Nasdaq futures dropping 0.4%. Despite initial opening gains, Nikkei futures were off their highs. Treasury futures slipped as Fed fund futures scaled back expectations for rate cuts later in the year. The market raised the possibility of the Federal Reserve increasing rates by a quarter point in May to 57%, up from 48% on Friday. Consequently, the dollar gained 0.3% on the Japanese yen, reaching 133.21, while the euro eased to $1.0817.

Japan's Trade Balance Impacted by Rising Oil Prices

The increase in oil prices challenges Japan's trade balance, as the country imports most of its energy.

Gold Prices Slightly Decrease Amid Rising Dollar and Yields

Gold prices experienced a minor decline of 0.25% as the dollar and yields increased, settling at $1,963 an ounce.