Oil surges after OPEC+ surprising output cut, gold shines

Oil surges after OPEC cuts

Oil prices surged after OPEC+ surprised energy markets with a production cut announcement of more than 1 million barrels a day. ​ This oil production cut follows the group’s 2 million bpd reduction of output made in October. ​ OPEC was signaling that they could keep production steady but it is clear that they are not confident with the demand outlook. ​

It is also important to appreciate the timing of the announcement. ​ OPEC didn’t wait for Monday’s JMMC meeting, but opted to announce right after they had their online discussion early on Sunday, before the market opened. ​ It is not just about what the Saudis do, but how they do it. ​ Clearly, the Saudis were not comfortable with how low oil prices were going and wanted to send a message here. ​ Energy analysts are going to have to reset any downbeat macro-driven forecast as oil is clearly making a run back towards $100 oil. ​ ​

Given compliance with OPEC production goals have been very poor, it seems these cuts will have a lasting impact as the top three oil producers are taking the lion’s share. Saudi Arabia and Russia will both cut production by 500K bpd and Iraq by 211K bpd. ​

Gold gains ground

Gold is rising after OPEC+ delivered another shock to the global financial outlook. ​ It is the third week in a row we are starting the trading week with a major development. First, it was Silicon Valley Bank, then Credit Suisse, and now OPEC+. ​ Higher oil prices will prove to be troubling for central bankers as they try to navigate the end of their respective tightening cycles. ​

Gold didn’t rally initially, but it seems traders are realizing that in the end nothing good can happen if oil prices continue to rise. ​ Demand for safe-havens appears to be elevated and that should be good news for gold. ​

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