Oil Prices Jump on OPEC Output Cut. Exxon, Chevron Stock Rise.

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Oil prices spiked on Monday after the Organization of the Petroleum Exporting Countries made a surprise cut to output targets.

Brent crude,
the international benchmark, climbed 6.5% to $85.05 a barrel.
West Texas Intermediate,
the U.S. standard, was up 6.6% to $80.64 a barrel.

The sudden increase in prices lifted oil stocks.
Exxon Mobil
(ticker: XOM) was up 4.3% in the premarket to $114.28, and
(CVX) rose 4.4% to $170.21.
(BP) and Shell (SHEL) each climbed about 5%.

Occidental Petroleum (OXY), the oil producer that billionaire investor 
Warren Buffett
‘s Berkshire Hathaway (
) owns 23.5% of, added 6.3%.

The oil-price jump meant that crude has now almost retraced its losses since Jan. 1. Concerns about energy demand after a year of rising interest rates, while supplies have been plentiful even after Russia invaded Ukraine, have pushed prices down more than 20% since this time last year. Prices took an extra dip in the middle of March as turmoil among banks further clouded the outlook for the economy.

That’s the background for OPEC’s announcement, which came unexpectedly between the group’s regularly scheduled meetings. Led by Saudi Arabia, OPEC is voluntarily planning on reducing output by about 1.1 million barrels a day. That comes on top of the cuts announced last October.

The move also reflects heightened geopolitical tensions, said Tom Holland of Gavekal Research. The U.S. has repeatedly said it wants to keep oil and gasoline prices lower.

“The Saudi government is not overly worried at siding with Russia in the view of the U.S. administration,” Holland wrote in a Monday note. That “points to a less certain world in the future, and higher long-term energy prices as a result.”

It may also impact the Federal Reserve, which had indicated it may be close to ending its tightening campaign as inflation showed signs of easing. The odds of another quarter-point hike at the next meeting on May 3 rose to about 60% from less than 50% yesterday, according to the CME FedWatch Tool.

“It will take some time to see exactly how much this impacts global prices as demand concerns linger, but this is another potential factor exerting upward pressure on inflation after largely being an ameliorating factor this year,” said analysts at Deutsche Bank in their Monday morning note.

Warren Patterson, an analyst at ING, revised up forecasts for oil prices in the second half of the year after OPEC’s announcement. He now sees Brent crude averaging a $101 a barrel in the second half, up from $97 a barrel previously.

Write to Brian Swint at [email protected]

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