Oil jumps to highest since mid-2015

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 US 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 US 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. Brent crude futures were up $1.76 at $56.09 per barrel, a 3.2 percent rise, after hitting a session peak of $57.89, the highest since July 2015.

US crude futures were up $1.73 at $53.24 a barrel, a 3.4 percent gain.

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 jumped, helping lift the Dow Jones industrial average and S&P 500 to record intraday highs in early trading. The S&P 500 was last down slightly, with consumer discretionary shares among the biggest drags.

The OPEC news and surge in oil prices were “good news for economic growth in the US 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 US stock market is mixed, he said.

The Dow Jones industrial average was last up 23.13 points, or 0.12 percent, to 19,779.98, the S&P 500 had lost 3.8 points, or 0.2 percent, to 2,255.73 and the Nasdaq Composite had dropped 40.91 points, or 0.75 percent, to 5,403.59.

MSCI’s all-country world stock index was up 0.01 percent, while Europe’s STOXX 600 ended down 0.5 percent.

Benchmark US bond yields topped 2.5 percent for the first time since October 2014, with analysts saying the OPEC agreement had boosted reflation expectations.

“We have the Fed decision coming up on Wednesday, and people are unsure whether they should buy the dip here,” said interest rate strategist Gennadiy Goldberg of TD Securities in New York.

US 10-year note prices were down 8/32, while the yield rose to 2.493 percent from 2.464 percent late on Friday. Earlier on Monday, the yield struck 2.528 percent, its highest since Sept. 29, 2014, according to Reuters data.