Stocks open higher as traders weigh oil curb: markets wrap

European stocks advanced as investors weighed the impact of rising oil prices on risk assets.

The Stoxx Europe 600 Index rose 0.6% on Thursday, led by automobile and real estate shares. Government bonds fell across the region. S&P 500 and Nasdaq 100 futures posted modest gains.

Treasury 10-year yields edged higher while the dollar weakened after its biggest jump in a week on Wednesday. The pound erased a gain, with traders weighing a move by Fitch Ratings to downgrade its UK outlook to negative.

Investors are trying to determine the impact of OPEC+’s decision to reduce daily oil production by two million barrels. Oil traded near $88. The White House warned about negative effects on a global economy weathering curbs on Russian imports and said the US would release 10 million barrels from strategic reserves.

Higher energy prices can stoke inflation, delaying the prospect of a dovish pivot from the likes of the Federal Reserve. However, they also limit demand, slowing the economy in line with what the Fed hopes to achieve through tighter policy.

“Rising commodity prices have been and will be demand destructive,” said James Athey, investment director at abrdn. “The Fed won’t hike until something breaks and there are a lot of fragilities in this system.”

Goldman Sachs Group Inc. increased its fourth-quarter price target for Brent crude oil to $110, implying a jump of almost a fifth from today’s level.

“We are here sitting at near record low inventories. Demand will increase this winter because a lack of gas will drive more oil demand and now we have a loss in supply from OPEC and likely from Russia,” said Damien Courvalin, head of energy research for Goldman.

Federal Reserve Bank of Atlanta President Raphael Bostic said on Wednesday he favored raising interest rates to 4.5% by the end of the year, implying a further 125 basis points of tightening. His San Francisco counterpart Mary Daly warned against expecting any rate cuts in 2023.

• Ether added 1.4% to $1,363

Commodities

• West Texas Intermediate crude was at $87.73 a barrel
• Gold surged 0.5% to $1 723.97 an ounce