Oil prices jump, markets narrow the odds of a Fed hike

SYDNEY, April 3 (Reuters) – Oil prices rose on Monday after Saudi Arabia and other OPEC+ producers announced a surprise round of output cuts, a potentially ominous sign of global inflation just days after a drop in U.S. price data had boosted market optimism.

Brent crude futures jumped $3.94 to $83.83 a barrel on the news output would be cut by about 1.16 million barrels per day. U.S. crude rose $3.84 to $79.51, but was off its early peak of $81.69.

The change comes ahead of a virtual meeting of an OPEC+ ministerial panel, which includes Saudi Arabia and Russia.

“The involvement of the largest OPEC+ members suggests that compliance with production cuts may be stronger than has been the case in the past,” said Vivek Dhar, an energy analyst at CBA.

“That means oil markets could potentially see around 1% of global oil supply or more cut from May.”

The latest cuts could increase oil prices by $10 a barrel, the head of investment firm Pickering Energy Partners said on Sunday.

Goldman Sachs raised its forecast for Brent to $95 a barrel by the end of the year and to $100 by 2024.

“Today’s surprise cuts are consistent with the new OPEC+ doctrine to act preemptively because they can without significant losses in market share,” Goldman said.

“Although surprising, this cut reflects important economic and likely political considerations.”

The rise in energy costs somewhat overshadowed Friday’s slower reading for US core inflation, which had seen Wall Street end the month on a strong note.

S&P 500 futures fell 0.3% on Monday, while Nasdaq futures lost 0.6%. EUROSTOXX 50 futures fell 0.1%, while FTSE futures rose 0.1%.

MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell 0.4%.

Chinese blue chips (.CSI300) rose 0.7%, rejecting a Caixin/S&P survey of manufacturers that showed a surprise drop in sentiment to 50.0 in March and was on par with the strength seen in services surveys last week.

Japan’s Nikkei (.N225) rose 0.5%, although a survey of manufacturers came in short of forecasts.

There was better news from the final Jibun Bank Japan manufacturing survey, which improved to 49.2 in March from February’s 47.7, the slowest decline since November.

LESS FEEDING CUT

The support for inflation expectations saw the yield on two-year US Treasury bonds rise 4 basis points to 4.11%, while Fed Fund futures reduced expectations for rate cuts later in the year.

The market increased the likelihood of the Federal Reserve raising interest rates by a quarter of a point in May to 61%, from 48% on Friday, and had priced in a 38 basis point cut by the end of the year.

That in turn helped the dollar gain 0.5% on the Japanese yen to 133.44, while the euro fell almost 0.5% to $1.0789. The rise in oil prices is bad news for Japan’s trade balance, as it imports most of its energy.

The rise in the dollar and yields pushed gold prices down nearly 0.9% to $1,950 an ounce.

The outlook for US interest rates could be influenced by ISM manufacturing and wages data out this week, although the reaction to next Friday’s jobs report will be tempered by the Easter holiday.

Central banks in Australia and New Zealand are holding policy meetings this week, with the latter expected to increase by another quarter to 5.0%.

Markets are betting that the Reserve Bank of Australia (RBA) will pause its tightening campaign after 10 straight increases, although analysts are more divided on whether it could increase further. ,

Reporting by Wayne Cole; Editing by Shri Navaratnam, Stephen Coates and Kenneth Maxwell

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