OPEC has finally come to an agreement to cut oil production amid a 2020 oil price rout. This development is according to Reuters sources.
Oil demand has been hit hard by sharply falling demand spurred by Coronavirus-induced lockdowns globally, while supply has not been restricted until Thursday. Smaller oil companies, who have higher debt burdens than larger ones, are seeing outsized moves in their share prices. For the broader market, this is net positive, although the market had already anticipated an agreement.
Previously, Russia and Saudi Arabia had begun a price war, keeping supply high and battling for market share. They’ve apparently some to terms, allowing the larger cartel to agree to cut production by as much as 20 million barrels per day, a considerable portion of total expected output.
Crude oil rose as much 8% to $27 per barrel, still well below the $61 it was at in early January, but above the $20 low it hit in March of this year. The gain moderated to 3.4% to $25 per barrel by late morning.
When the price had risen more sharply, here were the moves in oil stocks:
- BP: +0.6%
The broader market’s gain stayed put at between 1% and 2%, with the S&P 500 trading in the same range. While a higher cost of fuel for consumer and companies like airlines is a negative, the U.S. is now a far larger oil producer than it has been in past eras, making the industry a huge source of employment for the U.S. economy.
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