Oil prices push higher as Russia orders output cuts, Goldman issues bullish view

Crude oil futures rose Monday in the wake of escalating geopolitical worries following attacks in Russia and a bullish Goldman Sachs note on the outlook for commodities.

Russia’s Kuibyshev oil refinery halted one of its two primary refining units, knocking out half of its capacity following a Ukraine drone attack over the weekend, Reuters reported; the strike was the eighth on Russian refineries in the last three weeks.

The attack will knock another 35K bbl/day of Russian refinery capacity out of action, bringing a total of ~400K bbl/day offline on top of normal maintenance, StoneX’s energy team led by Alex Hodes said.

Also, Russia’s government has ordered companies to reduce oil production in Q2 to ensure an output target of 9M bbl/day by the end of June, in line with its pledges to OPEC+, according to Reuters.

Russia’s Vladimir Putin has attempted to link Ukraine to Friday’s terrorist attack on a concert hall outside Moscow that left more than 130 deaths; Islamic State terrorists claimed responsibility.

Front-month Nymex crude (CL1:COM) for May delivery ended +1.6% to $81.95/bbl, and front-month May Brent crude (CO1:COM) finished +1.5% to $86.75/bbl, the third highest settlement so far this year for both benchmarks.

The energy sector (NYSEARCA:XLE) easily logged the biggest gain among the S&P 500 industry groups, +1.7%, with Constellation Energy (CEG), APA Corp. (APA) and ConocoPhillips (COP) ranking among the day’s top 15 gainers.

Goldman Sachs analysts said Monday they expect commodities will advance this year as central banks reduce interest rates, helping to support industrial and consumer demand.

Raw materials including copper, aluminum, gold and oil may return 15% this year as borrowing costs come down, manufacturing recovers, and geopolitical risks persist, Goldman analysts including Samantha Dart and Daan Struyven said, according to Bloomberg.

“We find that U.S. rate cuts in non-recessionary environments lead to higher commodity prices, with the biggest boost to metals (copper and gold in particular), followed by crude oil,” the Goldman group said, adding “the positive impact on prices tends to increase with time, as the growth impulse from looser financial conditions filters through.”

Jeff Currie, former head of commodities research at Goldman and now at Carlyle Group, also recently forecast gains as the Fed cuts rates.