Europe midday: Shares inch ahead on OPEC cuts, but inflation fears weigh

European shares edged ahead at the open with oil prices jumping sharply after an unexpected decision to cut crude output, which in turn sparked fears of renewed inflation.

The pan European Stoxx 600 was up 0.13%, while the oil-heavy UK FTSE 100 outperformed with a 0.83% rise.

West Texas Intermediate soared as much as 8% in early trading and stood above $79 per barrel after oil cartel OPEC+ slashed production by more than 1 million barrels a day, while Brent crude surged more than 5% to $84.

Saudi Arabia pledged to cut 500,000 daily barrels alone. Russia joined in, pledging to reduce production as oil-rich countries try to drive demand.

"The development comes as a blow for inflation, with expectations of inflation coming down partly balancing on the trajectory of the oil price. Markets are aware that if the pressure continues, central banks will need to extend or strengthen their interest-rate hiking cycles, the expectations of which will need to be repriced," said Hargreaves Lansdown analyst Sophie -Lund-Yates.

The news boosted major oil producers, with BP, Shell, Aker BP, Equinor, Galp and ENI all higher.

On the downside, airlines all fell on the prospect of higher costs and reduced demand if inflation was refuelled. British Airways owner IAG, along with low-cost rivals Ryanair and Wizz Air felt the pinch.

Sentiment was also hit by a China manufacturing survey for March showing an unexpected fall in output.

In European economic news, eurozone manufacturing activity fell to a four-month low in March, according to data released on Monday.

S&P Global’s final eurozone manufacturing purchasing managers’ index declined to 47.3 from 48.5 in February. A reading below 50.0 indicates contraction, while a reading above signals expansion.

S&P Global said much of the month-on-month drop was due to the suppliers’ delivery times index - which is inverted in the calculation of the headline PMI - surging to a survey record. It noted that the key sub-components of the headline indicator measuring factory health such as output, new orders and employment were little changed on the whole.

Reporting by Frank Prenesti for Sharecast.com