Oil prices jumped 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 gains to be up 4.7 per cent at $83.66 and 4.6 per cent higher at $79.17, respectively. US petrol futures also rose 2.3 per cent to $2.74 per gallon.
The sharp gains for crude came after Saudi Arabia announced it would implement a “voluntary cut” of just under 5 per cent of its output, or 500,000 b/d, “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 b/d until the end of the 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 cut to production, 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 per barrel on the back of an expected daily decrease in output of about 1.1mn b/d. The bank also boosted its end-2024 forecast to $100 per 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 b/d between the first and fourth quarters, “the largest relative in-year increase since 2010”.
In sovereign debt markets, bond yields rose, pushing down prices. Yields on 10-year US Treasuries rose 0.04 percentage points to 3.511 per cent. In currencies, both sterling and the euro fell about 0.4 per cent against the dollar to $1.23 and $1.08, respectively.
Equities were mixed in Asian trading, with Japan’s benchmark Topix index up 0.6 per cent and Hong Kong’s Hang Seng down 0.4 per cent.
Futures tipped the S&P 500 stock index to shed 0.3 per cent at the open in New York, while the FTSE 100 was expected to rise 0.1 per cent.