Americas News
Oil Surges On Back Of Surprise OPEC Cut - But Bearish Elements Remain
An unexpected production cut from the Organization of the Petroleum Exporting Countries (OPEC) caused a huge surge in oil prices on Monday, with a corresponding rise in global energy shares.
On Sunday OPEC announced cuts of about 1.16 million barrels per day (bpd), and traders on Monday caused Brent to settle up $5.04, or 6.3 percent, at $84.93 per barrel.
West Texas Intermediate climbed $4.75, or 6.3 percent, to settle at $80.42.
Accordingly, Goldman Sachs raised its forecast for Brent to $95 per barrel by the end of the year and to $100 for 2024, stating that "Today's surprise cut is consistent with the new OPEC+ doctrine to act pre-emptively, because they can without significant losses in market share.
"The risks around cutting production have become asymmetric given how short positioning has become, and because price increases in response to tightening events can be stronger when the market is short."
Goldman Sach also pointed out that a 7 percent boost in oil prices due to the cuts would contribute to high OPEC member revenues.
But George Cipolloni, portfolio manager at Penn Mutual Asset Management, was one analyst who on Monday didn’t overlook the circumstances that up until recently were keeping a lid on the commodity.
He said, "There's going to be this balance between inflation coming off and then the potential for economic recession."
Also on Monday was data showing that the U.S. economy continued to slow, with declines in manufacturing and construction spending – factors that will likely influence trading as the week progresses.
In this light, Bloomberg assessed OPEC’s cuts thusly: “The decision to cut production would reduce the potential for a slump if a full-blown recession hits later in the year; yet it also increases the chances of a short-term crude price spike, which would stoke the inflationary forces that have wreaked such havoc in the global economy.”
