In 1975, the tabloid New York Daily News ran the now-legendary front page headline “FORD TO CITY: DROP DEAD” after President Ford refused federal assistance to spare New York City from bankruptcy.

This week, the Organization of the Petroleum Exporting Countries and its allies (aka OPEC+) effectively delivered the same message to Western leaders. As the U.S., Europe, and the rest of the developed world struggle with the twin tasks of maintaining economic growth and taming inflation, OPEC+ showed rude indifference.

Nine members of the 13-member oil cartel announced last Sunday that they would cumulatively slash crude oil production by another 1.16 million barrels per day (bpd) until the end of 2023.

The countries making the move include Saudi Arabia (the de facto leader of OPEC+), Kuwait, and the United Arab Emirates. The voluntary production cuts aren’t tied to the cartel’s official policy and they’re slated to start in May.

Analysts were stunned by the news; White House officials responded angrily. Mohammed bin Salman Al Saud, Crown Prince and Prime Minister of Saudi Arabia (known colloquially as MBS), seems to enjoy snubbing President Biden.

The oil production pullback is a tailwind for oil prices, which had slumped in the first quarter due to the banking crisis and recession fears.

OPEC+ last October had agreed to a production cut of 2 million bpd from November until the end of 2023; Russia’s share of that pullback amounted to 500,000 bpd. The new output cuts announced Sunday come on top of these existing reductions.

In the wake of the OPEC+ bombshell, crude oil prices soared Monday and continued rising Tuesday, underscoring crude’s recent rebound (see chart).

Russian President Vladimir Putin has been persistently lobbying for OPEC+ cuts, because his country’s sanctioned-hobbled economy is in desperate need of revenue, not only to keep his government’s domestic budget afloat but also to finance his war against Ukraine.

Saudi Arabia is upset by what it views as hypocritical carping from the U.S. and Europe about the kingdom’s human rights record. MBS is only too happy to turn his economic thumbscrews on the West, which pleases fellow autocrat Putin.

Federal Reserve Chair Jerome Powell’s job in taming inflation was difficult enough. Higher oil prices, stemming from the production cuts, will make his job all the more difficult. Brace yourself for sticker shock at the gasoline pump.

The inflationary effects of costlier energy could prompt the Fed to get more hawkish with monetary tightening, just as it appeared the Fed would ease up. Of course, what goes around, comes around. If the Fed keeps rates higher for longer, it would dampen the economy, which would weaken energy demand and weigh on crude prices.

OPEC+ has injected more uncertainty into the global economy and financial markets. That said, OPEC+ only has so much power over the daily gyrations of crude prices. OPEC+ producers often cheat on their quotas and pump more oil than the voluntary limits allow.

Sunday’s announcement by OPEC+ isn’t just political revenge against the West. At the end of the day, what matters most is money…petrodollars, to be precise. The latest cuts have a lot to do with preventing a collapse in oil prices. OPEC+ oil ministers fear a global recession, as economies continue to wobble from the Russia-Ukraine quagmire and the lingering effects of the pandemic.

The best of frenemies…

However, for oil to get significantly closer to $100 per barrel, as some analysts are now suggesting it will, a lot more crude would have to be taken out of well-stocked global inventories. Another major economic hit, on the magnitude of the recent banking crisis, would throw the plans of OPEC+ into a cocked hat.

Cartel members have miscalculated in the past, notably when Saudi Arabia launched a disastrous price war in 2020 against its “frenemy” Russia.

WATCH THIS VIDEO: Stocks End Q1 on a High Note…Can it Last?

If you’re looking to invest in energy stocks, now’s an opportune time to gain exposure through bargain hunting. After a stellar run in 2022, the energy sector in the first quarter of 2023 fell by -5.6%. As oil prices resume their upward trajectory, energy stocks, particularly oilfield services firms that had been idled, should reap the benefits.

For the first quarter, Wall Street is the most optimistic about energy, which boasts the highest percentage of analyst Buy ratings (63%).

Paradoxically, higher crude oil prices also can be interpreted as a sign of economic vibrancy, as long as prices don’t get too high. Wall Street on Monday shrugged off the OPEC+ news and stocks closed generally higher.

However, the mood turned bearish as investors digested new data that show economic growth is decelerating. Notably, the government reported Tuesday that new factory orders declined in February for the second straight month.

The main U.S. stock market indices closed sharply lower Tuesday, as follows:

• DJIA: -0.59%
• S&P 500: -0.58%
• NASDAQ: -0.52%
• Russell 2000: -1.81%

To be sure, deflationary factors remain in place. Recent inflation reports have been encouraging. The personal consumption expenditures (PCE) price index continued to trend lower in February.

But maybe you’re spooked by all this market volatility. As I’ve just explained, global risks are increasing. However, there’s a way to profit from uncertainty…and my colleague Jim Pearce can show you how.

Jim Pearce is chief investment strategist of our premium trading service Mayhem Trader. Jim has pinpointed one overlooked precious metal that could offer protection and massive profits, come hell or high water. Click here for details.

John Persinos is the editorial director of Investing Daily.

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