A surprise production cut by Saudi Arabia and its OPEC+ partners complicates the outlook for stocks, bonds and currencies.
A surprise production cut by Saudi Arabia and several of its OPEC+ partners could complicate the outlook for stocks, bonds and currencies while undercutting the fight against inflation by the Federal Reserve and other central banks, analysts said.
The Kingdom led the way with a planned cut of 500,000 barrels per day, with Iraq, Oman, Kazakhstan, the United Arab Emirates, Kuwait and Algeria making up the rest. On top of this, Russia said it would extend its own voluntary production cut of half-a-million barrels per day through the end of the year. It had been due to expire at the end of June.
Oil traders caught off guard Oil futures shot higher Sunday evening, following the announcement of the cut earlier in the day. West Texas Intermediate crude futures, the U.S. benchmark, initially surged 8% to touch their highest level since late January before moderating. Higher oil prices bolstered energy stocks, which have underperformed since the start of 2023. They helped offset losses in other areas of the market, as seven of the 11 S&P 500 sectors traded lower, with the tech-heavy consumer discretionary and information technology sectors seeing the biggest declines, according to FactSet. Meanwhile, the S&P 500 SPX vacillated between mild losses and gains.
Meanwhile, commodity analysts at Goldman Sachs Group increased their year-end price target for Brent crude, the global benchmark, by $5 to $95 per barrel. Others said that the cut would likely lead to substantially higher oil prices, barring a sharp downturn in the global economy. If global inflation does pick up, “it will harm both equity and bond markets,” said Mark Grant, chief global strategist at Colliers Securities, in comments emailed to MarketWatch. The resulting dynamic could look similar to last year’s moves across markets, which saw 60/40 portfolios suffer one of their worst calendar-year losses in recent memory.
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