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Inflation concerns grip global markets as Saudi Arabia extends production cut

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2023-09-06

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Inflation fears gripped global markets on Tuesday as Wall Street resumed trading after the extended weekend, colliding with the aftermath of Saudi Arabia's decision to prolong its million-barrel-a-day production cut until year-end.

The Saudi production reduction aids in funding Russia’s expenses for its involvement in the Ukrainian conflict while generating substantial revenue for investing in sporting teams, foreign companies, mines, and banks. Russia has also committed to maintaining its 300,000-barrel-a-day cut (though skepticism persists about its authenticity, labeling it as a nominal output shortage).

This development propelled US crude futures to surpass $86 per barrel, marking a ten-month high. Meanwhile, Brent crude futures settled just above $90 per barrel. Consequently, petrol prices in the US, Europe, and Australia are expected to rise, particularly with the Australian dollar's value slipping below 64 US cents and the possibility of further decline by Wednesday.

J.D. Joyce, President of Houston-based financial advisory firm Joyce Wealth Management, commented, "The impact on overall supply will be substantial. The balance between supply and demand is more delicate than commonly perceived...if the prolonged million-barrel-per-day reduction proves successful, it could disrupt the equilibrium between supply and demand."

Recent weeks have witnessed Australian petrol prices surging beyond $2.15 per barrel, although a cycle of discounts has led to a retreat to approximately $196 per barrel in much of Sydney.

US bond yields experienced a sharp uptick of over 7 points, reaching 4.26%. Meanwhile, the yield on 2-year T-bonds surged past 4.98%, inching closer to the peak of 5.03% witnessed last week.

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