Daily Market Analysis

OPEC+ Production Cuts Provide a Boon for the Oil Price

April 3, 2023

Production cuts announced by OPEC+ caught the market off-guard to start the week and provided a boon to the oil price. Ahead of their meeting this week, OPEC+ announced that oil production would be cut by over 1m barrels per day (BPD). One gets the feeling that the OPEC+ members were not entirely comfortable seeing the languishing below the US$70 level in recent times. This latest announcement along with the ongoing shortfall in the US Strategic Petroleum Reserve (SPR) has seen the WTI price jump US$10 from where it was seen trading last week. The brighter mood on global equity markets has also given rise to the oil price as threats of a banking sector crisis recede. Traders will be keenly tuned to the OPEC+ meeting this week for comments or clues which could hint at any further upside in the oil price.

In Australia, the ASX200 was on the front foot to start the week with the local index benefitting from the bumper Friday night session on Wall Street and also the strong showing from the resource sector. Elsewhere in the region, the Nikkei was also posting gains however the performance of the Hang Seng index was more muted. In the US, the softer Core PCE Price Index reading was taken as a signal by markets that the Fed can afford to pause its rate hike cycle at its next meeting, though its still currently looking like a toss-up at this stage whether they hike again or not. The latest spike in the oil price may also play a hand on what the Fed does next regarding its fight against inflation, particularly if the latest jump in oil is sustained as oil at the current level won’t be doing the inflation rate any favours. In any case, traders are feeling upbeat that the banking troubles of March have not amplified into broader macro problems at this point, as evidenced by the robust equity markets performance of late.

In the forex market, the Aussie dollar was again unable to break through resistance at US$0.6730 during the Friday session despite the positive risk sentiment on display in the broader market. Today the AUDUSD was again struggling with the lower-than-expected Chinese Manufacturing PMI data not helping its cause. The Caixin Manufacturing PMI for China came in at 50, which is not a terrible result (a reading of 50 or above indicated expansion) however it was lower than the 51.4 number expected. Also weighing on the AUD’s fortunes is the upcoming RBA rate decision on Tuesday. It’s looking like a toss of the coin, but one could certainly make an argument that based on recent retail sales data and inflation readings that the RBA could afford to hit the pause button on rates for now. But whether that is the approach taken by the RBA or not will be known on Tuesday and we could see some price volatility in the AUDUSD rate and the ASX200 in the aftermath.

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