Market Expectations of Fed Hike Reduced as Oil Prices Soar
Oil prices experienced a significant increase on Monday following the announcement by Saudi Arabia and other OPEC+ producers of a surprise round of output cuts. Brent oil futures surged by $3.94 to $83.83 a barrel, while U.S. crude rose by $3.84 to $79.51, but later dropped to $81.69. The move came before a virtual meeting of an OPEC+ ministerial panel, which included Russia and Saudi Arabia.
Analysts predict that adherence to production cuts could be stronger than it has been in the past, potentially resulting in the curtailment of around 1% of global oil supply or more from May. Goldman Sachs has lifted its forecast for Brent to $95 a barrel by year-end and to $100 for 2024.
This development could be a sign of global inflation and comes just days after a slowdown in U.S. price data had boosted market optimism. The rise in energy costs somewhat overshadowed Friday’s slower reading for core U.S. inflation, which had seen Wall Street end the month on a strong note. The jolt to inflation expectations saw yields on U.S. two-year Treasuries rise 4 basis points to 4.11%, while Fed fund futures pared back expectations for rate cuts later in the year. The market nudged up the probability of the Federal Reserve hiking rates by a quarter point in May to 61%, from 48% on Friday, and had 38 basis points of cuts priced in by year-end.