Oil records its biggest recovery in more than a year after OPEC+ cut

Oil posted its biggest recovery in more than a year after OPEC+ unexpectedly announced production cuts that threaten to tighten the market and trigger a new inflationary shock in the global economy.

The Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, have pledged to make cuts of more than 1 million barrels per day starting next month and through the end of the year. The reduction surprised markets, which expected the cartel to keep output stable. Adding to the surprise, the decision was made outside of the group's scheduled schedule to review market demand and members' supply.

The decision quickly spread through the world oil markets. The WTI fast spread turned lagging for the first time since December, signaling renewed strength as traders see demand outpacing supply. Goldman Sachs Group raised price forecasts for this year and 2024 and US gasoline futures also rose, underscoring inflationary risks.

“OPEC+ shows its commitment to hedge against downsides,” said Nadia Martin Wiggen, a partner at Pareto Securities. “The duration of the cut is the most surprising and bullish part.”

Before the surprise intervention, crude had limited a quarterly fall of 5.7 percent amid turmoil in the banking sector and recession risks. Many market watchers expected a rebound in the second half, supported by rising demand in China. Countering the wave of surges in Wall Street calls in the wake of the decision, Morgan Stanley noted that demand growth from China has been below expectations and lowered its price forecast.

US response to rising oil prices
The White House said the OPEC+ decision was ill-advised, adding that the United States would work with producers and consumers to contain gasoline prices.

With the driving season in the United States just around the corner, the cartel cut could add more than 50 cents a gallon to the national average of gas pump prices. Last year, as prices soared after Russia's invasion of Ukraine, President Joe Biden ordered an unprecedented release of the country's strategic crude reserves.

More expensive crude threatens to increase inflation, complicating central banks' efforts to rein in lingering price pressures. The Federal Reserve raised interest rates again last month, and officials will meet next May to set monetary policy.

How much did oil rise after the OPEC+ decision?
WTI for May delivery rose $4.75 to $80.42 a barrel at 2:32 p.m. in New York.
Futures rose as much as 8 percent earlier, the biggest intraday rise since March 2022.
Brent for the June settlement gained $4.91 to $84.80 a barrel.