Spreadex Market Update
Oil prices up on surprise OPEC production cut
The supply side of the oil price equation just got a jolt from the surprise decision by OPEC+ to cut production further. Saudia Arabia announced what will be ‘voluntary’ cuts from May through the end of 2023. The decision was in concert with a decision by Russia to cut output by 500,000 barrels per day until the end of the year.
Oil prices mostly traded in a range throughout Q1, with Brent crude stuck around $80 per barrel. It was only in the middle of March the prices turned more bearish with a drop-down to $70 per barrel. As of writing, the price is $15 higher, around $85 per barrel, about where it started in Q1.
With the US and Europe seemingly haven avoided a widener banking crisis and with new stimulus measures in China, the demand side is looking increasingly bullish despite many calls for a recession. As such, there are renewed calls for the oil price to reach back over $100 per barrel.
Were the oil prices to continue, that would put a major spanner in the works of central banks, including the US Fed, which has planned to retire rate hikes in a month or two. Energy prices are a major contributor to inflation, and indeed it was surging energy prices following the pandemic and Russia’s invasion of Ukraine that sent inflation higher in the first place. The Fed might instead need to keep hiking rates, supporting the dollar but causing problems for stocks, bonds and gold.
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