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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Oil price up after Saudi Arabia cuts output; UK mortgage rates and car sales rise – as it happened

Oil United Kingdom Saudi Arabia United States Inflation Saudi OPEC Recep Tayyip Erdoğan Barclays Coventry Building Society
The Hawiyah Natural Gas Liquids Recovery Plant in Hawiyah, in the Eastern Province of Saudi Arabia.
The Hawiyah Natural Gas Liquids Recovery Plant in Hawiyah, in the Eastern Province of Saudi Arabia. Photograph: Amr Nabil/AP

Afternoon summary

Time for a recap – here are today’s main stories:

The latest health checks on America’s services sector paint a conflicting picture, with ISM reporting growth fizzled out..

… while S&P Global spies a pickup in activity;

Wall Street has made a muted start to the new week, with the Dow Jones Industrial Average dipping by 0.15%.

Apple are up over 1%, though, ahead of its Worldwide Developers Conference (WWDC) in California later today, where it could launch a new mixed-reality headset.

Lagarde: no clear evidence that underlying inflation has peaked

There is no clear evidence that underlying inflation in the eurozone has peaked, Christine Lagarde, President of the European Central Bank, is warning.

Lagarde is testifying to the European Parliament’s Economic and Monetary Affairs Committee now.

She reminds MEPs that headline eurozone inflation has declined from its October peak and stood at 6.1% in May, down from 7% in April.

Lagarde explains:

While base effects have led to some variation in energy inflation in recent months, the rate declined to -1.7% in May. Food price inflation remains elevated but is decreasing and stood at 12.5% in May, down from 13.5% in April.

The ECB chief warns, though, that price pressures remain strong, with core inflation (excluding energy and food) declining to 5.3% in May from 5.6% in April.

Both headline and core inflation are being supported by the pass-through of past energy cost increases and supply bottlenecks.

Lagarde cautions:

The latest available data suggest that indicators of underlying inflationary pressures remain high and, although some are showing signs of moderation, there is no clear evidence that underlying inflation has peaked.

Lagarde then warns that some companies have managed to lift their profit margins (which has driven up greedflation worries).

She says:

Wage pressures have strengthened further as employees recoup some of the purchasing power they have lost as a result of high inflation. Moreover, in some sectors firms have been able to increase their profit margins on the back of mismatches between supply and demand and the uncertainty created by high and volatile inflation.

Airlines worldwide are on course for near-record revenues of more than $800bn (£645bn) this year, according to the trade body Iata, which doubled its industry profit forecast for 2023 to almost $10bn.

Iata’s director general, Willie Walsh, denied that fares were excessive despite the upgrade in the financial outlook. He said profit margins remained “wafer thin” and blamed airline suppliers for increasing costs.

After industry losses of $183bn in the pandemic years, Walsh said airlines were “en route to a profitable, safe, efficient and sustainable future”.

People were flying despite economic uncertainties, he said, with the latest data showing passenger traffic down by less than 10% on 2019 levels.

Back in the markets, the pound has dropped by three-quarters of a cent against the US dollar today.

Sterling is down 0.6% at $1.2372 today, the lowest since last Wednesday.

Last week, the pound had been on track for its best week against the US dollar since late last year. But the rally faltered on Friday when data showed the US added 339000 new jobs in May, more than expected.

That has fuelled predictions that the US Federal Reserve could continue raising interest rates to fight inflation – a battle that won’t be helped by higher oil prices….

Analysts at BNY Mellon says the dollar is being pushed higher by “the rush of focus on US growth and FOMC rate hikes in the last week”.

CBI president: outcome of vote on our future is not a given

Tomorrow, the Confederation of British Industry will hold a key vote on proposals to reform the business lobby group, following a crisis prompted by multiple sexual misconduct allegations.

The outcome of that vote “isn’t a given”, CBI president Brian McBride says today.

Writing on the Financial Times website, McBride argues that the CBI has drawn up “comprehensive and ambitious” plans to change its operations and governance structures.

McBride writes:

A vote in favour of the prospectus won’t solve our problems overnight. But it would give us the tools we need to fix our culture long term and the backing to do what we do best: fight on behalf of business across the country.

With a general election a year away, it is crucial that we get back to that important policy and lobbying work. Businesses need a strong, collective, national voice to fight for UK-wide issues such as higher economic growth, lower inflation and a smooth transition to net zero. While trade associations and other business groups do a great and important job in representing their sectors and their members, no one else has the breadth and depth of economic and political expertise to fulfil this role. There is a reason why every major economy in the world has a CBI equivalent.

But does that have to be the CBI, though?

The British Chambers of Commerce (BCC) has launched its own new business lobby group today. Called the Business Council, it will include UK business leaders and help to design and drive the future of the British economy.

Shevaun Haviland, the director general of the BCC, says:

“Over the past few months we have been talking to the nation’s largest corporates and it has become clear to us that they are looking for a different kind of representation.”

British Airways has operated its first passenger flight between London Heathrow and Beijing in more than three years.

The route was suspended early in the coronavirus pandemic in 2020, but on Sunday, British Airways’ first flight from Heathrow to Beijing since January 2020 touched down.

The airline will operate four return flights per week on the route, which is also served by its business partner, China Southern.

Louise Street, British Airways’ director of worldwide airports, said:

“The restart of one of our most important routes after more than three years is a long-awaited moment for all of us at British Airways.

“Following the successful resumption of flights between Shanghai and London in April, we’re excited to be back in Beijing too, reuniting families and friends and facilitating international student and business travel once again.”

Opec+’s decisions last weekend mean there is a growing possibility that energy prices will rise, warns Fatih Birol, the executive director of the International Energy Agency (IEA).

Birol s concerned that imbalances in the oil market will worsen this year, hurting developing countries the most:

Drivers with fossil fuel-powered cars shouldn’t panic about Saudi Arabia’s planned oil production cut in July, says the RAC.

RAC fuel spokesperson Simon Williams says petrol and diesel prices should fall in the short-term, as retailers pass on recent drops in the wholesale price of oil.

Williams explains:

“While oil production cuts are intended to push up the barrel price which usually means bad news for drivers at the pumps there’s currently no cause for panic. Diesel is still seriously overpriced due to its lower wholesale price which hasn’t been fully passed on by the biggest retailers despite a record 12p a litre fall in May so should continue to come down. And the price of petrol is also slightly too high and should fall by a couple of pence in the next week or so.

“Pump prices are now back to what they were in October 2021 with unleaded at 143.26p which means it’s very close to dropping below the previous long-term record high of 142.48p set in April 2012, but of course the Government’s 5p a litre duty discount is a big part of this. Diesel is already below its former all-time high of 147.93p from the same time.

“Oil producer group OPEC+ has taken well over 3m barrels a day out of circulation so far this year, but due to the economic downturn forecourt prices have continued to fall. For that reason, we remain hopeful this won’t affect drivers for some time.”

Updated

UK gender pension gap measured at 35%

UK women have 35% lower pension pots when they hit retirement age compared to men, new government data shows.

The Department for Work and Pensions (DWP) has calculated Britain’s gender pension gap (GPeG) is 35%, based on the uncrystallised median private pension wealth for men and women approaching retirement ago.

The UK's gender pension gap

The GPeG is smallest for those aged 35-39 (10%) and then increases to 47% for those aged 45-49. The GPeG then decreases again in the later years of working life, the DWP reports.

For those eligible to be automatically enrolled on workplace pensions, the gap is slightly smaller, at 32%.

Last week, the TUC warned that women are more than twice as likely as men to miss out on being automatically put into a workplace pension, because they earn less than the £10,000 threshold.

The GPeG is also caused by the gender pay gap – because men earn more, they pay more into their pensions – and by the unequal division of caring responsibilities. Women are much more likely to take time out of work or work part-time to look after children, meaning less opportunity to pay into private pensions.

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, warns that the gender pension gap “looks set to remain with us for some time yet,” despite the governmnet’s childcare reforms.

Morrissey says:

“The gender private pension gap is 35% - less of a gap, more of a gaping chasm! It is shrinking - it was once as high as 42%, but it is still way too high.

There is room for optimism though – for the auto-enrolment eligible population the gap is slightly smaller at 32% so we can hope that gap continues to close as more women save into workplace pension schemes. Participation rates are also high – in some cases higher than men and the real term increase in total female pension savings is £4bn higher than for men since the introduction of auto-enrolment.

Kate Smith, Head of Pensions at life insurance, savings and pensions group Aegon hopes that regularly measuring the gender pensions gap will help set pensions policy:

“While it is widely recognised that there is a persistent gender pensions gap, until now there has been no official means of measuring this. We warmly welcome Pensions Minister Laura Trott’s initiative to create an official definition, which is based on pensions wealth built up by the 55-59 age group.

It’s just not acceptable that the gap sits at 35%, meaning many women are lagging far behind their male counterparts when it comes to retirement provision.

Bloomberg: Why Saudi Arabia's solo oil production cut is risky

Bloomberg’s energy expert Javier Blas has written about how Saudi Arabia “threw away its own rule book” last weekend, by announcing a unilateral cut to oil output rather than a deal in concert with Opec members.

And so far…. the strategy may not have worked, as oil is only up around 2% despite Saudi Arabia pledging to cut its production by 10% in July.

He writes:

The cut is meant to be only for July, but the Saudis indicated it may be extended if needed. Oil traders reckon that’s likely. Prince Abudlaziz said the cut highlighted how the kingdom “will do whatever is necessary to bring stability to this market.” For stability, read higher oil prices.

Because Riyadh is forfeiting so much production, unless prices rally over the next few days it would end giving up an enormous amount of petroleum revenue. Everyone else inside the OPEC+ alliance would reap the benefits.

To keep earnings unchanged, Riyadh needs oil to surge by more than $10 a barrel to offset the drop in production from April to July. It’s impossible to know what would have happened to oil prices had the Saudis kept output unchanged. But for now, it doesn’t look like the strategy is paying off.

Eurostar signs at St.Pancras International Railway Station in London.

Eurostar has ended its service to Disneyland Paris today.

The final train from London St Pancras to Marne-la-Vallee, a station next to the theme park, departed at 10.34am as the operator focuses on its core routes to Paris and Brussels.

Eurostar’s direct trains to Disneyland Paris have been running in 1996; ending them will make it harder for British families to make the trip to the French Disneyland.

It has also emerged that Eurostar’s London-to-Amsterdam link faces being suspended for nearly a year.

Dutch media reported that infrastructure secretary Vivianne Heijnen has warned that no Eurostar trains will be able to run to or from Amsterdam Centraal, the capital’s main station, from June 2024 until as late as May 2025, while it is renovated.

The UK van market also grew last month, new SMMT data shows.

Registrations of light commercial vehicle registrations grew by over 15% year-on-year to 25,359 units in May, the fifth consecutive month of rising demand.

So far this year, there have been 135,296 new vans registered, which the SMMT attributes to easing supply chain disruptions and sustained demand for larger vehicles.

Sales of new battery electric vans grew by a fifth, to 1,041 units in May.

The SMMT is concerned that a ‘national plan’ is needed to help deliver the transition to the zero emission van transition.

It says:

This can be achieved via a supportive fiscal framework, simplified planning processes, faster grid connections and the provision of a nationwide network of reliable, affordable chargepoints.

In addition, regulated infrastructure targets that are commensurate with new vehicle registration mandates would help to reassure van operators that their specific business needs can be met with a battery electric van. Investment is undoubtedly coming for the car sector, but the van sector cannot be left behind.

Back in the property market, the cost of rent across England rose for the fifth consecutive month during May, according to PropTech firm Goodlord.

Letting Agent Today has the details:

During the month, voids also held steady - evidence that market demand remains strong heading into summer, traditionally the busiest time of year for the sector.

Six of the eight regions monitored by Goodlord saw rents rise over the course of May. The average cost of rent per property in England is now £1,111. This is up from £1,103 in April, a 1% increase.

Rents rose faster in the South West, where they rose almost 3% last month, while there were marginal drops in the East Midlands and the North East.

UK widens lead as Europe’s top market for financial services investment

The skyline of the City of London.

Despite angst about the damage caused by Brexit, the City of London is still managing to attract overseas investment.

The UK remains Europe’s most attractive destination for financial services investment, attracting a quarter of new projects last year, according to new data from EY published this morning.

EY reports that the UK attracted 76 financial services projects in 2022 – an increase of 13 projects from 2021. That helped Britain extend its lead over France, which secured 45 projects last year, a drop of 15.

Overall, there were 292 financial services foreign direct investment (FDI) projects across Europe last year, up 5%.

Germany and Spain were tied third with 31 projects each.

Anna Anthony, UK financial services managing partner at EY, explains:

“The strength of the UK financial market has meant that – even through challenging times – investors see it as the most attractive European financial services market. A lot has happened in the seven years since the EU referendum, and the UK has faced strong competition from its closest competitors. Our research shows that investors recognise the strength, gold-standard governance and resilience of the UK’s financial system and see it as the preferred destination for growth, innovation and access to top talent.

“Of course, we can’t be complacent. Industry and government focus on raising market attractiveness is key and should align with what matters to investors – such as levelling up, enhancing social infrastructure and upskilling local talent – to ensure UK financial services retains and continues to extend its leading role on the global stage.”

Saudi production cut: political reaction

A White House official said overnight that the Biden administration is focused on oil prices and “not barrels” after Saudi Arabia announced its plans to make a deep cut to its crude output.

The official, who declined to be named, told Reuters:

“We are focused on prices for American consumers, not barrels, and prices have come down significantly since last year.

As we have said, we believe supply should meet demand and we will continue to work with all producers and consumers to ensure energy markets support economic growth and lower prices for American consumers.”

Last year the US was pushing oil producers to increase output, rather than cutting, to bring down gasoline prices.

Last October, the White House expressed disappointment when OPEC+ cut production quotas. But since then, US crude has dropped to around $73 today from almost $90 in early October.

Over in Moscow, the Kremlin has said that the Opec+ group is an important format for providing stability on global energy markets.

Russia are part of Opec+, which pumps around 40% of the world’s crude.

Anxiety over the strength of China’s economic recovery is weighing on the energy market, reports Charalampos Pissouros, senior investment analyst at XM.

Pissouros says:

Regarding the energy market, oil prices opened with a large positive gap today, after Saudi Arabia said it will cut production by another 1mn barrels per day (bpd), starting in July. This was a decision on top of a broader OPEC+ consensus to extend the previous cuts into 2024 as the cartel seeks to offer support to prices.

Despite the surprising decision to cut supply back in April, the related gains were short-lived, with prices coming under pressure since then on concerns that the weakness of economic activity in China will weigh on demand.

A chart showing asset price moves, 5th June 2023
A chart showing asset price moves this morning Photograph: XM

UK services firms blame higher wages for price rises

UK service sector firms lifted their prices again last month, as they tried to pass on higher wage costs, according to the latest survey of purchasing managers.

Data provider S&P Global reports that service sector cost inflation hit a three-month high in May, due to higher payroll costs.

This prompted a jump in output prices, as companies tried to recoup these higher wages – although some firms found their clients were reluctant to accept higher prices.

Tim Moore, economics director at S&P Global Market Intelligence, says there were “intense wage pressures” in the service economy last month, even though employment growth moderated.

Moore added:

Higher salary payments more than offset lower fuel costs, which meant that overall input price inflation edged up to its strongest for three months in May.

Average prices charged by service sector companies nonetheless increased at the second-weakest pace since August 2021 amid some reports of greater price resistance among clients.”

Purchasing managers also reported robust rises in output and incoming new work in May, which helped the sector keep growing.

The S&P Global / CIPS UK services PMI dipped to 55.2 in May, down from April’s 55.9, but still showing solid growth (any reading over 50 shows an expansion).

The oil price continues to rally this morning, after Saudi Arabia’s decision to cut oil production by 1 million barrels per day.

Brent crude is now up 2.5% today at $78.4 per barrel, back towards the one-month high late last night when the plan was announced, following the Opec+ meeting.

Analysts at RBC Capital Markets say:

Our Commodity Strategy team notes that the announcement by Saudi Arabia demonstrated that it is once again willing to midwife the recovery and is back in “whatever it takes” mode.

UK car sales rise as recovery continues

UK car sales have continued to recover from their slump in the pandemic, but remain sharply below pre-Covid levels, new industry data shows.

New car registrations rose by 16.7% in May, the Society of Motor Manufacturers and Traders has reported, to 145,204.

Thaat is the 10th consecutive month of growth, as the market is boosted by improved supplies of new cars.

It’s the longest uninterrupted period of growth since 2015, according to the SMMT. But, registrations remain 21% below May 2019 when 183,724 new cars were registered.

Mike Hawes, SMMT chief executive, said,

After the difficult, Covid-constrained supply issues of the last few years, it’s good to see the new car market maintain its upward trend and the fact that growth is, increasingly, green growth is hugely encouraging.

Transforming the market nationwide, however, and at an even greater pace means we must increase demand and help any reticent driver overcome any concerns about electric vehicles. This will require every stakeholder – industry, government, chargepoint operators and energy companies – to play their part, accelerating investment to drive decarbonisation.”

Large fleet registrations continued to drive the growth, up by 36.9% to 76,207 units, which the SMMT attributes to greater availability following challenging supply issues in 2022.

Registrations to private buyers fell slightly by -0.5% to 65,932 cars, while smaller business fleets registered 3,065 units, a year on year rise of 22.5%.

Petrol-powered cars made up 57.1% of all registrations, despite efforts to move motorists onto electric vehicles.

But the number of new battery electric cars jumped by over 58% year-on-year, to 24,513 from 15,448 in May 2022.

The Paris stock market is calm this morning, after France avoided being downgraded by Standard & Poor’s last Friday.

S&P announced late on Friday night that it was maintaining France’s AA rating, with a negative outlook, despite concerns that it could downgrade the eurozone’s second-largest member.

In its regular assessment, S&P warned that the French economy will be held back by “tighter financial conditions and still-high core inflation” this year, and in 2024.

They predicted that Paris will succeed in lowering its annual borrowing, saying:

We expect France’s budget deficit will decline to 3.8% of GDP in 2026, from about 5% in 2023, with general government debt remaining above 110% of GDP.

These forecasts are subject to risks related to growth and the government’s economic and budgetary policy implementation.

S&P cautioned it could lower its sovereign ratings on France within the next 18 months if general government debt as a share of GDP does not steadily decline, or if government interest expenditure increases above 5% of revenue.

They say:

The negative outlook reflects our view of downside risks to our forecast for France’s public finances amid its already elevated general government debt.

S&P’s decision has been welcomed by French economy minister Bruno Le Maire

“It’s a positive signal,” Le Maire said in an interview with French weekly Le Journal du Dimanche published late Friday, adding:

“Our public finance strategy is clear. It’s ambitious. And it’s credible.”

Key event

The London stock market has started the new week with a small rally.

The blue-chip FTSE 100 index has gained 33 points, or 0.4%, to 7649 points, hitting its highest level in over a week.

Oil giants BP and Shell have both gained around 1%, after the rise in crude prices this morning.

Victoria Scholar, head of investment at interactive investor, says:

“European markets have opened mixed with the FTSE 100 in the green driven by BT and Vodafone which are at the top of the blue-chip index. Oil stocks like Shell and BP are also outperforming thanks to underlying oil price gains.

Saudi Arabia plans to reduce its oil output by 1 million barrels per day in July, landing its production level at around 9 million barrels per day, a multi-year low. This is in response to falling oil prices and concerns about a softer global demand outlook.

The move by the Kingdom has helped support Brent crude and WTI which initially surged this morning but have since pared gains with the key benchmarks currently trading higher by more than 1.5% each.

UK short-term borrowing costs are rising in early trading, which could put more pressure on mortgage rates.

The yield, or interest rates, on two-year UK government bonds has jumped to 4.43%, from 4.35% on Friday night. That’s the highest level since last Wednesday. Last month, the two-year bond yield hit 4.58%, the highest since the market turmoil after the mini-budget.

Those bonds are used to price two-year fixed-term mortgages.

Other European government bond yields are also rising, as this morning’s jump in the oil price threatens to keep inflation high for longer.

Over in Turkey, inflation has dipped but remains painfully high, highlighting the challenges facing Recep Tayyip Erdoğan’s administration.

Consumer prices in Turkey rose by 39.6% in the year to May, down from 43.7% in April, with underlying inflation higher than expected.

The drop in consumer prices came after Erdoğan promised to provide free natural gas for households for a month, aheaad of the May election which he won.

This is the seventh month in annual inflation in a row, since it peaked near 86% last October.

But the recent weakness in the Turkish lira, which hit record lows last week, could add further inflationary pressure.

Lewis Shaw, owner of the mortgage broker Riverside Mortgages, told The Times that mortgage lenders risk being ‘swamped’ by customers trying to secure a deal, pushing rates higher.

“I certainly did not expect to see the cheapest deals from Barclays starting with a 5.

The worry is that it sets off a self-fulfilling spiral again where customers start diving in to try and secure deals, lenders get swamped and their only way to turn off the tap is to increase rates, and on it goes.”

Record demand for 35-year mortgages as rates keep rising

Rising mortgage rates are forcing more borrowers to take out lengthy loans.

A record share of first-time buyers are taking out mortgages with terms of 35 years or more, the Telegraph reported yesterday, rather than the ‘typical’ 25-year term.

They cited new UK Finance data showing that almost a fifth of loans taken out by first-time buyers in March were for terms of 35 years or longer.

Such longer-term loans look more attractive as interest rates rise, as the monthly payment on the debt will be lower. However, it could be creating a ‘debt timebomb’ in future years, as lender could still be stuck with a mortgage late in their careers, or even into retirement.

UK Finance, the trade body, is expected to warn this week that longer-term borrowing could be ‘reaching its limit. Its analysis is expected to say:

“Whilst this has been a long-term trend seen since 2010, the growth in borrowing over a longer term accelerated rapidly through 2022. As 2023 began we have seen the growth in longer term borrowing level off.

Although tentative at this stage, this may signal that the extent to which this option can be used to stretch affordability and meet underwriting requirements is reaching its limit.”

Escalating turbulence in Britain’s mortgage market as banks hike rates

The turbulence in the UK’s mortgage market is escalating as lenders lift the rates on their loans, putting a squeeze on households looking to remortgage this year.

The jump in wholesale borrowing costs, as the City anticipates the Bank of England will continue to lift Base Rate this year, is causing ructions across the market.

On Friday, TSB withdrew its 10-year fixed mortgages with just a couple of hours notice, and also lifted its two and five-year fixed rates by as much as 0.8 per cent, Mortgage Solutions reports.

According to The Times today, the country’s third- largest lender, Santander, made changes over the weekend, while Coventry Building Society is expected to increase all its two, three and five-year deals tomorrow.

This follows a rush to pull offers last week, when UK banks and building societies removed almost 800 residential and buy-to-let mortgage deals amid growing concerns over future interest rate rises.

The disruption was triggered by the smaller-than-expected fall in UK inflation in April, which could prompt the BoE to raise interest rates from their current 4.5% to 5.25%, or more, by the end of this year.

The Times reports today:

The number of mortgage deals has hit its lowest level since March, according to the financial data analyst Moneyfacts. The average two-year fixed-rate mortgage has risen from 5.34 per cent to 5.64 per cent over the same period, adding £444 a year to repayments on a £200,000 mortgage in two weeks.

Other lenders including Barclays, HSBC, NatWest, Virgin Money and the Nationwide, Skipton and Yorkshire building societies have all increased fixed-rate deals over the past week by up to 0.85 percentage points.

Introduction: Oil rises after Saudi Arabia announces output cut

Good morning, and welcome to our rolling coverage of business, the financial markets and the economy.

The oil price is rising this morning after Saudi Arabia decided to cut its crude output by one milllion barrels per day.

Saudi Arabia will make an additional voluntary cut of 1 million barrels of oil a day as part of a deal struck by the Opec+ group of producers, after hours of tense haggling in Vienna.

After a weekend of talks, Saudi Arabia announced its oil output will drop to 9 million barrels per day (bpd) in July from around 10 million bpd in May, the biggest reduction in years.

The reduction is part of an Opec+ agreement which will also see the United Arab Emirates increase its output target by 200,000 barrels a day from January.

But several African members will have their quotas reduced from next year, bringing them closer to their actual production capacities.

“This is a Saudi lollipop,” Saudi energy minister Prince Abdulaziz told a news conference last night, explaining:

“We wanted to ice the cake. We always want to add suspense. We don’t want people to try to predict what we do... This market needs stabilisation”.

News of the Saudi output cut has lifted the oil price. Brent crude, the international benchmark, has gained over 2%, and touched a one-month high of $78.73 per barrel, before dipping back.

The Brent crude oil price
The Brent crude oil price Photograph: Refinitiv

Opec+ also agreed to extend the voluntary output cuts announced two months ago into 2024, as the group face the threat of flagging prices and a looming supply glut.

The group said it was acting to “achieve and sustain a stable oil market, and to provide long-term guidance for the market”.

Despite today’s rally, oil is still lower than in January, having started the year around $85 per barrel.

Consumers and businesses have been hoping that cheaper energy prices would ease the cost of living squeeze; some will be hoping that today’s jump is short-lived.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, says:

The week kicked off with a jump in oil prices, after Saudi announced that it will cut its production by another 1mbpd starting from July, pulling its production to the lowest levels since years.

The UAE will be given higher quotas, as African countries - which repeatedly fell below their production quotas– will see their upper production limit lessened.

Saudi will continue doing the heavy lifting of production cuts, hoping that its efforts will reverse the falling price trend in oil markets and boost prices, but the gifts to some OPEC members in expense of the others hint that we could see further cracks within the cartel in the next few months, and that’s not a winning setup for OPEC, and oil bulls.

Also coming up today

UK car sales rose last month, according to industry data due out this morning, but are still below their pre-pandemic levels

The latest surveys of purchasing managers across the UK, eurozone and the US are due out today. They could show that private sector growth slowed in Europe last month, but picked up in the US.

The agenda

  • 7am BST: German trade balance for April

  • 9am BST: UK car sales figures for May

  • 9am BST: Eurozone service sector PMI report for May

  • 9.30am BST: UK service sector PMI report for May

  • 2pm BST: ECB president Christine Lagarde testifies to European Parliament’s economic and monetary affairs committee

  • 3pm BST: US service sector PMI report for May

  • 3pm BST: US factory orders for April

Updated

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