Oil prices have soared nearly 6% after Saudi Arabia and other major oil producers said they will cut production by 1.15 million barrels per day from May until the end of the year.
The opening bell is seen on the floor at the New York Stock Exchange in New York, Tuesday, March 28, 2023. – Stock markets around the world are mixed Monday, as a jump in oil prices threatens to add upward pressure on inflation.
While the jump in oil helps energy producers, it also weighs on much of the rest of the market. That's because it dents one of the main themes that helped stocks rise in this year's just completed first quarter: that turmoil in the banking system and a continued slowdown in inflation could push the Federal Reserve to ease its hikes to interest rates.
Hope on Wall Street had been rising that the Fed may already be done raising rates and that cuts to rates could even happen later this year. Such cuts would release some of the pressure on the economy, which is still growing thanks to a strong job market but has shown pain in the housing market and other corners.
But following Monday’s leap for oil prices, bets built that the Fed may hike rates by another quarter of a percentage point in May, according to CME Group. It got its initial push higher from a 6.2% rise for a barrel of U.S. crude oil to $80.38. It climbed on the announcement for production cuts from May until the end of the year.
“This will create both political waves across Europe and even higher general inflation in the USA, leading to renewed pressure on the Federal Reserve to keep hiking rates aggressively,” Clifford Bennett, chief economist at ACY Securities, said in a report.
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