Brent crude jumps $5/bbl after output cuts; stocks rise

(C) Reuters. FILE PHOTO: A man uses a laptop, under an electronic board showing stock visualizations, inside a brokerage building, in Tokyo, Japan, March 20, 2023. REUTERS/Androniki Christodoulou

By Caroline Valetkevitch

NEW YORK (Reuters) -Oil prices were up sharply on Monday after Saudi Arabia and other OPEC+ producers announced unexpected production cuts, and gains in energy shares helped to limit declines in some world stock indexes.

Major U.S. stock indexes were mixed in late morning trading, with the S&P 500 index near flat. The S&P 500 energy index was up 5.2%, leading gains among sectors.

In a surprise move, the OPEC+ group on Sunday announced cuts to production amounting to about 1.16 million barrels per day. The new cuts could push oil prices towards $100 a barrel, analysts and traders said.

U.S. crude recently rose 5.88% to $80.12 per barrel and Brent was at $84.48, up 5.75% on the day.

The jump in oil prices has come as investors have been trying to gauge how much longer the Federal Reserve may keep raising interest rates to cool inflation.

The Dow Jones Industrial Average rose 239.21 points, or 0.72%, to 33,513.36, the S&P 500 gained 1.25 points, or 0.03%, to 4,110.56 and the Nasdaq Composite dropped 86.10 points, or 0.7%, to 12,135.81.

“We could see inflation bottom out a little bit higher than anticipated, which may mean that the Fed continues their rate hiking a lot longer and further than many currently expect,” said Paul Nolte, senior wealth adviser and market strategist at Murphy & Sylvest.

The pan-European STOXX 600 index lost 0.01% and MSCI’s gauge of stocks across the globe gained 0.15%.

Shares of Exxon Mobil Corp (NYSE:XOM) were up 5.4%, while Chevron Corp (NYSE:CVX) was up about 4%.

At the same time, consumer discretionary shares fell with the gains in oil, with the sector down 1.3%.

Tech shares, which struggle in a higher rate environment, also were lower. The S&P 500 tech index was last down 0.7%.

Goldman Sachs (NYSE:GS) lifted its forecast for Brent to $95 a barrel by the end of the year and to $100 for 2024 following the oil output change, which was announced on Sunday, a day before a virtual meeting of an OPEC+ ministerial panel including Saudi Arabia and Russia.

The dollar was last down, surrendering earlier gains following the oil output cut announcement, as investors weighed diverging central bank policy, with the Fed widely viewed as nearing the end of its rate-hike cycle.

The dollar index fell 0.719%, with the euro up 0.42% to $1.0884

Treasury yields retreated after data showed U.S. manufacturing activity slumped to the lowest level in nearly three years.

The yield on two-year Treasury notes, which typically move in step with interest rate expectations, fell 6.8 basis points at 3.994% after the Institute for Supply Management (ISM) said as new orders continued to contract.