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Oil prices surged on Monday, following the announcement of surprise production cuts of over 1 million barrels a day by OPEC+ nations in response to weaker demand.
International oil benchmark Brent crude rose up to 8.4% to a high of $86.44 a barrel, while US marker West Texas Intermediate climbed up to 8% to $81.69 a barrel in early Asian trading.
The sharp gains in crude prices came after Saudi Arabia announced a “voluntary cut” of just under 5% of its output, or 500,000 barrels per day, “in coordination with some other OPEC and non-OPEC countries.”
Russia, a member of OPEC+, also declared that it would extend its existing production cut of 500,000 barrels a day until the end of the year. Goldman Sachs raised its year-end forecast for Brent crude in response to the production cuts.
The bank’s economists expect a daily decrease in output of around 1.1 million barrels per day, and they increased their forecast for Brent crude to $95 per barrel by the end of the year. The bank also raised its forecast for the end of 2024 to $100 per barrel.
The cuts to oil production come 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 believe that recent crises in the banking sector could sap global demand for crude, which may have prompted the surprise production cut.
In response to the cuts, bond yields rose, pushing down prices. The yields on 10-year US Treasuries rose 0.04 percentage points to 3.53%, while the yields on 10-year German Bunds rose 0.03 percentage points to 2.34%.
In currencies, the dollar index, which measures the greenback against six peer currencies, rose 0.3%. Equities were mixed in Asian trading, with Japan‘s benchmark Topix index up 0.7% and Hong Kong‘s Hang Seng down 0.2%. Futures tipped the S&P 500 stock index to shed 0.2% at the open in New York, while contracts for the tech-heavy Nasdaq were down 0.6%.