Oil prices increase on OPEC+ output decision
NEW YORK: Oil prices jumped higher on Thursday (Friday in Manila) after OPEC+ countries allowed crude production to rise only slightly, while US stocks unwound over concerns about rising inflation despite the US Federal Reserve’s (Fed) attempt to allay fears.
After a videoconference lasting less than three hours, the OPEC groups of oil producers and its allies decided to extend output cuts enacted at the pandemic’s outset into April, while the production boost they did approve amounted to only a third of what observers had predicted.
OPEC stands for the Organization of the Petroleum Exporting Countries.
Oil prices surged by more than 5 percent by the end of the meeting, reaching levels not since early January, before dialing back slightly.
“Today’s decision is clearly a positive outcome for oil prices,” said analyst Fawad Razaqzada at Thinkmarkets.
“With (coronavirus) vaccinations well underway across important regions of the world, travel demand should keep prices supported for the next few months,” he added.
Inflation fears led to a bad day on Wall Street, with bond yields rising and the Nasdaq nearing correction territory after investors were disappointed by Fed Chairman’s Jerome Powell’s response to their concerns.
Powell downplayed fears of rising prices and reiterated that the US central bank won’t be raising rates until inflation is above its 2-percent goal and stays there “for some time.”
Karl Haeling of LBBW said markets were hoping for “something stronger,” including some operation to help contain the bond selloff.
“We don’t know right now if it’s just a knee jerk reaction of disappointment, or if this is really the starts of a new phase higher in bond yields,” he told Agence France-Presse.
A similar dynamic was seen in Asia, where inflation fears sent stock markets retreating even as virus-striken economies reopened. European stocks fell in early trading but pared their losses, with Paris ending the day flat.
End of free money
The growing belief is that, in the coming months, a spending splurge from pent-up consumers exiting lockdowns and a huge US stimulus package would light a rocket under prices.
This, in turn, could force central banks to wind back ultra-easy monetary policies, including record-low interest rates, that have been a key driver of the surge in stock markets.
Meanwhile, US senators are due to start debating President Joe Biden’s stimulus plan, with the president giving way on some demands from moderate Democrats to remove high earners from getting $1,400 stimulus checks.
The decision, analysts say, could reduce the cost of the rescue package, which would still likely come in at $1.5 trillion.
On the corporate front, takeaway meals app Deliveroo said it had chosen London for its stock market listing, a major boost for the capital’s financial sector, which has been roiled by Brexit.
Deliveroo, in line with other home-delivery companies, has seen demand soar in the past year, owing to lockdowns during the coronavirus pandemic.
No date has been set for the initial public offering (IPO), with the group already valued at more than $7.0 billion (5.8 billion euros).