Oil prices jumped on Monday and Goldman Sachs raised its year-end forecast for Brent crude after Opec+ nations announced surprise production cuts of more than 1mn barrels a day in the face of weaker demand.
International oil benchmark Brent crude rose as much as 8.4 per cent to a high of $86.44 a barrel in early Asian trading on Monday, while US marker West Texas Intermediate climbed as much as 8 per cent to $81.69 a barrel.
Brent and WTI later pared their gains to be up 5.4 per cent at $84.17 and 5.4 per cent higher at $79.78, respectively. US petrol futures also rose 2.3 per cent to $2.74 a gallon.
Shares in European energy companies jumped on the news, with the Euro Stoxx 600 energy index rising 3.6 per cent while the FTSE 100, which has a heavier weighting of energy companies than most indices, rose 0.7 per cent.
UK-based oil and gas company Harbour Energy climbed 6.7 per cent to the top of the Euro index. Oil majors TotalEnergies and BP each added more than 4 per cent.
The sharp gains for crude and energy companies came after Saudi Arabia announced it would implement a “voluntary cut” of just under 5 per cent of its output, or 500,000 barrels a day, “in co-ordination with some other Opec and non-Opec countries”.
Russia, a member of Opec+, also said it would extend its existing production cut of 500,000 barrels a day until the end of the year.
Analysts at Deutsche Bank said: “It will take some time to see exactly how much this impacts global prices as demand concerns linger, but this is another potential factor exerting upward pressure on inflation after largely being an ameliorating factor this year.”
The cut to production comes amid heightened uncertainty over the outlook for global oil demand after the US publicly ruled out new crude purchases to replenish its strategic stockpile — despite previously pledging to Saudi Arabia that it would buy up more purchases if its reserves fell.
Analysts said the surprise production cut, which unusually for the cartel took place outside a formal Opec+ meeting, was also likely to have been spurred by concerns that recent crises in the banking sector could sap global demand for crude.
In response to the cuts, economists at Goldman Sachs raised the bank’s year-end price forecast for Brent crude by $5 to $95 a barrel on the back of an expected daily decrease in output of about 1.1mn barrels a day. The bank also boosted its forecast for the end of 2024 to $100 a barrel.
“Opec+ has very significant pricing power relative to the past given its elevated market share, inelastic non-Opec supply and inelastic demand,” said Daan Struyven, senior energy economist at Goldman Sachs.
Struyven said the move reflected a “precautionary production cut” similar to that made by the oil cartel in October 2022, but added that “unlike then, the momentum for global oil demand is up not down with a strong China recovery”.
Last month, the International Energy Agency said a “resurgent China” would help push global oil demand up by 3.2mn barrels a day between the first and fourth quarters, “the largest relative in-year increase since 2010”.
Elsewhere in Europe, equity markets saw minor gains, with the region-wide Stoxx 600 and the German Dax both up 0.1 per cent and the French Cac 40 up 0.3 per cent.
In sovereign debt markets, bond yields rose, pushing down prices. Yields on 10-year US Treasuries rose 0.04 percentage points to 3.53 per cent, while the yields on 10-year German Bunds rose 0.03 percentage points to 2.34 per cent.
In currencies, the dollar index, which measures the greenback against six peer currencies, rose 0.3 per cent.
Equities were mixed in Asian trading, with Japan’s benchmark Topix index up 0.7 per cent and Hong Kong’s Hang Seng down 0.2 per cent. China’s CSI 300 rose 1 per cent.
Futures tipped the S&P 500 stock index to shed 0.2 per cent at the open in New York, while contracts for the tech-heavy Nasdaq were down 0.6 per cent.
