A 25-basis point interest rate hike by the Federal Reserve in May is now more likely to materialize as a result of the surprise oil production cut announced on Sunday by OPEC+, futures traders predict.
Chances now are higher for a May interest rate hike on the same level as the most recent hike, which was one-quarter of a percentage point, MarketWatch cited Fed funds futures traders as saying.
Fed funds futures traders now pinpoint a more than 58% chance of the May rate hike, up from 48% last Friday.
On Sunday, OPEC+ shocked oil markets by announcing that output would be reduced further, by around 1.66 million barrels per day, resulting in a massive 8% rally in crude oil prices late in the day. The new cuts, in combination with existing reductions, represent 3.7% of total global oil demand. At the same time, Russia said it would extend production cuts of 500,000 bpd until the end of this year.
On March 22, oil prices rose 2% after the Federal Reserve raised the key short-term interest rate by 25 basis points, with the smaller rate hike intended to reflect what the Fed called a “sound and resilient” U.S. banking system, after rapid rises in interest rates ultimately led to the collapse of Silicon Valley Bank (SVB).
At 11:14 a.m. EST, Brent crude was trading up 5.66% at $84.41, for a $4.52 gain on the day. West Texas Intermediate (WTI) was trading up 5.79%, breaking the $80 level at $80.05, for a $4.38 gain on the day.
By Charles Kennedy for Oilprice.com
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Charles is a writer for Oilprice.com