Oil prices surge as producers unveil shock output cut

HONG KONG – Oil prices surged on Monday following the decision by major producers to cut output by more than a million barrels per day.

The cut, which was the largest since October’s two million barrels per day slash, was announced by Saudi Arabia, Iraq, the United Arab Emirates, Kuwait, Algeria and Oman, along with Russia’s decision to extend a cut of 500,000 barrels per day.

While this move sent crude prices soaring, it raised concerns about potential inflation and pressure on central banks to increase interest rates.

According to a Saudi energy ministry official, the output cut was a “precautionary measure aimed at supporting the stability of the oil market.”

However, National Australia Bank’s Tapas Strickland suggested that the decision could deal a blow to markets, which had recently rallied on the back of optimism that the banking sector turmoil could force the US Federal Reserve to end its rate hike drive sooner than expected.

“For equity investors, this could be a rude awakening, as markets imply a Goldilocks outlook of reduced discount rates but no recession,” said Lazard Ltd’s Ronald Temple.

“The OPEC+ production cut is another reminder that the inflation genie is not back in the bottle.”

Despite these concerns, Asian trading floors were generally optimistic, with Shanghai, Sydney, Singapore, Manila, and Jakarta all rising, although Hong Kong slipped after last week’s rally.

In Europe, London, Paris, and Frankfurt opened with gains, while US futures dipped as Treasury yields climbed on bets of further monetary tightening by the Fed.

Meanwhile, data showed that US and European inflation eased last month, further boosting market confidence.

The PCE Price Index, the Fed’s preferred measure of inflation, slowed to an annual rate of 5.0% in February from 5.3% in January.

Eurozone prices rose 6.9% in March, down from 8.5% in February, beating expectations as energy prices eased.

“As we look ahead to a new month and a new quarter, and last week’s rebound the main question is whether we’ve left the trials and tribulations of March in the rear-view mirror or whether last week was the eye of the storm before the onset of further volatility,” said CMC Markets analyst Michael Hewson.