Oil jumps to highest since mid-2015, Fed hike on horizon

Mon Dec 12, 2016 4:49pm EST
 
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By Caroline Valetkevitch

NEW YORK (Reuters) - Oil prices surged to an 18-month high on Monday after the world's top crude producers agreed to the first joint output cut since 2001, sparking concerns about inflation, which pushed up U.S. Treasury yields to a more than two-year peak.

Yields also gained ahead of a two-day Federal Reserve policy meeting that starts on Tuesday, where the U.S. central bank is expected to raise interest rates for the only the second time since the global financial crisis.

The gain in oil prices followed the weekend agreement between OPEC and key non-OPEC states. U.S. crude futures rose $1.33 to settle at $52.83 a barrel, a 2.6 percent gain, though that was sharply off the day's highs.

Brent crude futures rose $1.36 to settle at $55.69, a 2.5 percent rise, after hitting a session peak of $57.89, the highest since July 2015.

There was particular surprise as Saudi Arabia, the world's top producer, said it may cut its output even more than it had first suggested at an Organization of the Petroleum Exporting Countries meeting just over a week ago.

Energy shares rose sharply in early U.S. trading, helping lift the Dow Jones industrial average and S&P 500 to record intraday highs. But the S&P 500 ended lower along with the Nasdaq. Consumer discretionaries and tech were among sectors that weighed on the S&P 500.

The OPEC news and surge in oil prices were "good news for economic growth in the U.S. as well as Russia and others. But it will be to some extent tempered by a little bit of an impact on consumer spending," said Hugh Johnson, chief investment officer of Hugh Johnson Advisors LLC in Albany, New York.

"There are so many reasons to believe inflation is going to be headed higher, and this just adds fuel to that fire," which is why bond yields are up and the U.S. stock market is mixed, he said.   Continued...

 
A gas station attendant pumps fuel into a customer's car at PetroChina's petrol station in Beijing, China, March 21, 2016.  REUTERS/Kim Kyung-Hoon