The price of crude oil was surging early Monday while stock futures were flat as an unexpected oil supply cut from OPEC+ over the weekend shook markets to start the second quarter.
Near 7:50 a.m. ET on Monday morning S&P 500 futures were down about 0.1%, Dow futures were up 0.3%, while Nasdaq futures were off about 0.7%.
Crude oil was higher by about 6% early Monday, with WTI crude oil — the U.S. benchmark — trading north of $80 a barrel while the international benchmark price, Brent crude oil, was trading near $85 a barrel.
On Sunday, the OPEC+ oil cartel — which includes OPEC members plus Russia — announced it would cut daily production by more than 1 million barrels of oil beginning in May and running through the end of the year.
“Even though, like OPEC, we expect only subdued demand growth this year, the scale of supply cuts will send the oil market balance into a deficit in 2023, with an even larger deficit in Q4,” wrote Caroline Bain, chief commodities economist at Capital Economics, in a note to clients on Monday.
Last month, the price of oil dropped to an 18-month low as a glut of supply and fears over the global economy shook the oil market. Additionally, a surge in the dollar as investor concern rose over the banking crisis pressured oil.
But as worries over an acute financial crisis worldwide have ebbed, the dollar has eased and WTI rose by nearly $10/barrel over the final two weeks of March.
A renewed surge in oil prices also potentially complicates the task ahead for the Federal Reserve, which has raised interest rates in a bid to lower inflation. Although the Fed’s preferred inflation measures strip out the costs of food and gas, a marked rise in so-called “headline” inflation — which includes energy prices — could complicate the messaging on a pause in interest rate increases later this year.
Data out on Friday showed headline inflation as measured by the Personal Consumption Expenditures (PCE) Index rose 5% over the prior year in February; core PCE showed prices rose 4.6% over last year in February.
The more widely followed Consumer Price Index showed headline inflation clocked in at 6% over the prior year in February. The Fed targets 2% inflation.
Elsewhere in markets on Monday a merger in the entertainment world will draw investor attention after Endeavor (EDR), parent company of UFC, announced a deal to merge with World Wrestling Entertainment (WWE) to form a new company that will trade under the ticker “TKO.”
Endeavor will own 51% of the new company with WWE holding a 49% interest.
The new company will have an enterprise value of $12.1 billion while the companies recognized 2022 revenues of $2.4 billion with a 10% annual revenue growth rate since 2019, the companies said in a press release.
Endeavor CEO Ari Emanuel will lead the new company, with Dana White serving as President of UFC and Nick Khan overseeing WWE. WWE founder Vince McMahon will serve as executive chairman of the new company.
Shares of WWE, which had gained more than 30% this year through Friday’s close amid persistent speculation about a takeover, fell 7% on the news early Monday. Endeavor shares were up about 3% in pre-market trade.
Tesla (TSLA) shares were also in focus early Monday after the company announced first quarter delivery numbers that set a new record for the electric carmaker as a cut in prices boosted overall demand for Tesla vehicles.
The company delivered more than 422,000 cars in the first quarter and made more than 440,000 new vehicles during the first three months of the year.
Tesla stock was down about 3% in pre-market trade on Monday.
Investors will also keep an eye on economic data out later this morning on U.S. manufacturing activity while the corporate schedule will be highlighted by Disney’s annual shareholder meeting, set to kick off at 1:00 p.m. ET.
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