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OPEC+ cuts output target by about 1.16 million bpd
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Oil prices record biggest daily rise in nearly a year
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Producer group acted after oil hit $70 a barrel
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Wall Street analysts raise 2023 price forecasts to near
$100/bbl
(New throughout, updates prices, market activity and comments)
By Shariq Khan
BENGALURU, April 3 (Reuters) -
Oil benchmarks jumped 6% on Monday, the day after the OPEC+
group jolted markets with plans to cut more production, raising
fears of tightening supplies while some warned of reduced demand
if oil refiners flinch at paying higher prices for crude.
Brent crude settled higher by $5.04, or 6.3%, at
$84.93 a barrel, after touching its highest since March 7 at
$86.44. West Texas Intermediate crude settled up by
$4.75, or 6.3%, at $80.42 a barrel after rising to a two-month
high during the session.
The Organization of the Petroleum Exporting Countries
and allies including Russia, a group known as OPEC+, shook
markets with Sunday's announcement that it will lower its
production target by a further 1.16 million barrels per day
(bpd).
The latest pledges bring the total volume of cuts by OPEC+
to 3.66 million bpd including a 2 million barrel cut last
October, according to Reuters calculations, equal to about 3.7%
of global demand.
U.S. President Joe Biden's administration said it was given
a "heads up" on the production cut and told Saudi officials that
it disagreed with it.
OPEC had described the cuts as precautionary. Analysts said
a weakening economy and rising oil stockpiles supported the
decision. Last month, Brent prices had traded near $70 a barrel,
a 15-month low, on fears of weakening demand.
Since mid-December, U.S. crude oil inventories have
risen fairly steadily and hit their highest level in two years
in the week ended March 17. Western sanctions on Russia also
have led to a sizeable number of Russian crude cargoes looking
for a home, Mizuho analyst Bob Yawger said.
Still, the OPEC+ production curbs led most analysts to
raise their Brent oil price forecasts to around $100 per barrel
by year-end. This in turn could prompt more aggressive interest
rate hikes from central banks and gradually push economies
closer to a recession, Yawger and others said.
U.S. manufacturing activity slumped to the lowest level
in nearly three years in March and could decline further on
tighter credit and higher borrowing costs.
The inflationary jolt to the world economy from rising oil
prices will result in more rate hikes, said Fawad Razaqzada,
Market Analyst at City Index.
"People will not stop driving or travelling by plane
because of high oil prices. Therefore, demand is only likely to
get hurt moderately by rising oil prices," he said.
Long-term, however, demand for energy could slump if oil refiners lower activity to counter rising input costs. Lower refining output could push prices at the pump to near last year's record $5 a gallon levels, Mizuho's Yawger said. The crack spread, or profit refiners make in converting crude oil to products, on Monday traded at its lowest since Feb. 24. The U.S. gasoline futures contract rose almost 8% to its highest since January and settled at $2.76 a gallon, up about 2.1%.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ OPEC+ production cut effect on oil price Brent crude price still lower year till date ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Shariq Khan; Additional reporting by Noah Browning, Mohi Narayan and Florence Tan Editing by Kirsten Donovan, David Goodman, David Gregorio and Jonathan Oatis)
