Crude burns brighter after OPEC+ output cut

The news shaping the markets today

Russia’s drones hit the strategic port of Odesa in Ukraine. Continued geopolitical tensions sent the safe-haven US dollar index higher this morning.

South Korea’s consumer price index rose 4.2% year-over-year in March, after rising 4.8% in the previous month, and exerted pressure on the KRW/USD forex pair.

Sri Lanka’s trade deficit narrowed to $39 million in February, from $781.3 million in the year-ago month. Exports fell by 10.2% to $982 million, sending the LKR/USD pair slightly lower in forex trading this morning.

Colombia’s Davivienda Manufacturing PMI improved to 51.5 in March, from 49.8 in the prior month. Output moving to the expansion zone lent support to the COP/USD forex pair.

Mexico’s S&P Global Manufacturing PMI came in unchanged at 51 in March. The news sent the MXN/USD pair lower in forex trading this morning.

What’s happening: Crude oil started the week with sharp gains.

What happened: The OPEC+ (Organization of the Petroleum Exporting Countries and its allies) surprised markets by announcing plans to make further production cuts.

Traders also remained optimistic about higher demand for oil due to a recovery in the Chinese economy.

Why it matters: Last month, Brent crude had fallen towards $70 per barrel, its weakest level in 15 months, due to concerns around the global banking crisis and rising interest rates significantly impacting oil demand. Oil prices also recorded their worst first-quarter performance since 2020.

On Sunday, the OPEC+ announced plans to reduce its production target by another 1.16 million bpd (barrels per day). Saudi Arabia said it would cut its crude production by 500,000 bpd starting May and continue till yearend.

Markets had expected the group to continue with its prior decision of reducing output by 2 million bpd until December. The recent decision by OPEC+ brings the total volume of cuts to 3.66 million bpd.

“The Sunday production cut was on no one’s radar,” UBS analyst Giovanni Staunovo said in a note. Goldman Sachs increased its Brent price estimates to $95 per barrel for 2023 and $100 for 2024.

Meanwhile, an initial agreement was reached for resuming oil exports through the port of Ceyhan, after Kurdish authorities halted the passage of approximately 400,000 bpd from the port.

Brent crude for June delivery jumped $5.04 to close at $84.93 per barrel, after hitting its highest since March 7. WTI crude oil for May delivery added $4.75 to settle at $80.42 per barrel, after climbing to its strongest level since late January.

In other energy trading, wholesale gasoline for May delivery gained 8 cents to $2.76 a gallon, while May heating oil added 4 cents to $2.66 a gallon. May natural gas declined 12 cents to $2.10 per 1,000 cubic feet on Monday.

What to watch: Traders will keep an eye on moves by the major central banks, as the latest move by the OPEC+ complicates the inflation and interest rate outlooks. Markets had earlier expected easing energy prices to allow central banks to pause their tightening cycle.

The release of API’s (American Petroleum Institute) data on crude oil stockpiles will also remain in focus today. US crude stockpiles had contracted by 6 million barrels in the week ended March 24, after an increase of 3.3 million barrels in the prior week.

The markets today

European stocks will be in focus today ahead of a couple of economic reports

Context: European equity markets closed mixed on Monday, with investors growing concerned about a decline in factory activity.

Details: The S&P Global Manufacturing PMI for the Eurozone fell to 47.3 in March, from 48.5 in the prior month. Factory activity remaining in the contraction zone in March dampened investor sentiment.

France’s manufacturing PMI was revised lower to 47.3 for March, from a preliminary reading of 47.7. Germany’s manufacturing PMI improved slightly to 44.7 for the month.

The STOXX Europe 600 Index slipped 0.03% to close at 457.72 on Monday. Financial services and mining stocks recorded sharp losses, falling more than 1%.

Oil and gas stocks jumping around 4% following the OPEC+ output decision. Bank stocks recovered after a turbulent quarter and added around 0.5% on the first trading day of April.

London’s FTSE 100 rose 0.54% to close at 7,673.00 on Monday, extended gains for the sixth straight session. Oil stocks, including Shell and BP, climbed sharply amid a surge in crude oil prices. UK stocks closed the day higher despite the country’s manufacturing PMI falling to 47.9 in March, from February’s seven-month high of 49.3.

Germany’s DAX 40 fell 0.31% to 15,580.92. France’s CAC 40 added 0.32% to settle at near a one-month high of 7,346, notching gains for the sixth session in a row.

What are expectations: Traders await economic reports on the ECB’s consumer expectations survey and producer price inflation today.

Other Markets: US trading indices closed mixed on Monday, with the Dow Jones index and S&P 500 up by 0.98% and 0.37%, respectively, and the Nasdaq 100 down by 0.25%.

Support & resistances for today

Market snapshot

What else to watch today

Germany’s exports and imports, Spain’s unemployment change, Brazil’s IPC-Fipe inflation, Mexico’s foreign exchange reserves, Canada’s value of building permits, US Redbook index, number of job openings, new orders for manufactured goods, IBD/TIPP economic optimism index and Logistics Manager’s Index, France’s new passenger car registrations, as well as Turkey’s balance of trade.