Oil surges after output cuts, strong dollar weighs

Oil prices jumped on Monday after the agreement on output cuts between OPEC and non-OPEC producers in Vienna. (Shutterstock)

Oil prices jumped to their highest levels in a year and a half on Monday after OPEC and non-OPEC producers agreed to cut oil output to ease a global glut, while the US dollar extended gains before a Federal Reserve meeting this week, at which a rate hike is widely expected.

The agreement between OPEC and a number of other oil producing nations was the first joint action since 2001, following more than two years of low prices that strained many government’s budgets and spurred unrest in countries from the Middle East to Latin America.

Brent futures for February delivery rose 4.4 percent to $56.72 per barrel, with US crude rising 4.8 percent to $53.98 per barrel in Asian trade.

The jump in oil prices comes in the wake of a renewed focus on inflation after data on Friday showed a rare spike in producer prices in China, prompting investors to worry that inflationary pressures are making a comeback globally.

“We have seen OPEC and non-OPEC producers agreeing, which is also boosting reflation expectation around the world,” said Chris Weston, an institutional dealer with IG Markets.

The 10-year US Treasuries yield rose as high as 2.5 percent in Asian trade, matching its 2015 peak.

In another sign of the reflation trade, breakeven rates, the gap between yields of five-year US debt and a matching tenor in inflation-protected securities, were at two-month highs, indicating markets are expecting inflation to accelerate.

Last Update: Wednesday, 20 May 2020 KSA 09:53 - GMT 06:53