OPEC and Russia Agree to Hold Oil Production Steady Through February. What That Means for Energy Stocks.
Oil prices surged on Tuesday after the world’s largest producers had agreed to hold off on production increases until March as a spike in coronavirus cases forced new lockdowns.
Russia has agreed to keep production at its current level for another month, according to The Wall Street Journal, a compromise with other oil producers after deadlocking on the issue on Monday.
The price of West Texas Intermediate, the U.S. benchmark, was up 4.7% in morning trading, to around $49.85 a barrel, and did briefly break through $50. Brent crude, the international standard, jumped 4%, to $53.09 a barrel.
Shares of oil producers also surged on Tuesday. Royal Dutch Shell (ticker: RDS. A) was up 5.7%, Exxon Mobil (XOM) rose 4.3%, and Chevron (CVX) rose 2.6%. The S&P 500 was flat.
Oil prices dropped more than 20% last year after demand dried up because businesses shut down. Producers tried to cut production to mitigate the crisis, but they couldn’t keep pace with the economic fallout.
At the beginning of 2020, oil was above $60 a barrel. Energy has been the S&P’s worst-performing sectors for a decade and was down 37.5% last year, but it leads the other sectors in the first two trading days of this year.
In a note late last month, Goldman Sachs said shares of Exxon as well as Marathon Petroleum (MPC) and Suncor Energy (SU) were oversold, recommending them as a Buy.
The Organization of the Petroleum Exporting Countries and Russia and other producers had agreed in December to increase production by 500,000 barrels a day. That was a net production cut since the start of the pandemic of about 7.2 million barrels a day.
Saudi Arabia and other producers wanted to extend the current production levels through February, while Russia resisted, according to the Journal. The producers are meeting virtually this week.
Together, OPEC and Russia and other producers are known as OPEC+. Russia had argued that U.S. producers would fill the gap in demand growth and grab market share, the Journal said.
On Monday, the Saudi energy minister, Prince Abdulaziz bin Salman, said that vaccines were a “very welcome sign” for the oil market, but that producers needed to remain cautious.
A new, more contagious strain of the coronavirus has forced fresh lockdowns in the U.K., and surging cases in the United States prevent business from returning to normal any time soon.
“As we see light at the end of the tunnel, we must — at all costs — avoid the temptation to slacken off our resolve,” Prince Abdulaziz said in a statement Monday. “Do not put at risk all that we have achieved for the sake of an instant but illusory benefit.”
Write to Liz Moyer at [email protected]
