DTN Oil

WASHINGTON(DTN) -- New York Mercantile Exchange oil futures and Brent crude traded on the Intercontinental Exchange advanced more than 5% on Monday, lifting the international benchmark above $84 barrel (bbl) after Saudi Arabia and other OPEC+ oil producers announced 1.66 million barrels per day (bpd) of production cuts ahead of the scheduled ministerial meeting.

According to Saudi oil minister Abdulaziz bin Salman, the decision to cut production is aimed at stabilizing oil prices that have come under increased pressure from volatility in the financial markets along with weak demand fundamentals across OECD countries. Saudi Arabia will shoulder a lion's share of that curb, reducing output by 500,000 bpd starting in May, followed by Iraq and the United Arab Emirates that will cut oil output by 211,000 bpd and 144,000 bpd, respectively. Kuwait agreed to lower crude output by 128,000 bpd, Kazakhstan by 78,000 bpd and Algeria by 48,000 bpd, followed by output reduction from smaller OPEC+ producers. The production cut is intended to remain in effect through the end of 2023.

The above will be in addition to the announced "voluntary adjustment" by Russia that agreed to reduce its output by 500,000 bpd until the end of 2023, which will be from the average production levels as assessed by the secondary sources for the month of February 2023. Russia first announced the voluntary adjustment in March before extending it through June 2023, citing the impact of Western sanctions on its crude and oil product exports.

In a note released Sunday, Goldman Sachs lowered its OPEC+ production forecast by 1.1 million bpd through the end of 2023, arguing that "OPEC+ has very significant pricing power relative to the past, and today's surprise cut is consistent with their new doctrine to act preemptively because they can without significant losses in market share." Golddman boosted its Brent price forecast by $5 for December 2023 to $95 bbl and to $100 for December 2024.

The announcement comes after inflation data on Friday showed U.S. consumer spending rose moderately in February after surging the prior month, signaling aggregate demand is ebbing under pressure from the Fed's rate increases. The U.S. Personal Income and Consumption Index -- a preferred inflation gauge of the Federal Reserve -- showed prices paid for core services rose 0.3% last month, less than expected.

Consumer inflation across the U.S. has been cooling due to the sharp disinflation in the goods sector. However, sticky services inflation continued to keep consumer prices well above the Fed's 2% long-run target. According to the Fed's own forecasts, inflation in the U.S. will average 3.3% this year, up from 3.1% seen in December and won't return to its target well until 2025. The OPEC+ decision to boost oil prices implies inflation may remain higher in the months ahead.

Near 7:45 a.m. EDT, the U.S. Dollar Index eased 0.08% against a basket of foreign currencies to trade near 102.110, further spurring gains for West Texas Intermediate futures that jumped above $80 bbl, up by $4.95 bbl in overnight trade. International crude benchmark Brent for June delivery advanced $5.03 bbl to trade near $84.96 bbl. NYMEX May RBOB futures traded $ 0.1088 higher at $2.7898 gallon, while ULSD May futures rallied to $2.7246 gallon.

Liubov Georges can be reached at liubov.georges@dtn.com