Oil stocks rose after OPEC+ announced .
The cut was unexpected and was announced outside of OPEC’s usual meeting schedule. The Biden administration called it “ill-advised.” Crude oil prices rose 6.5% on international markets. WTI crude, the U.S. benchmark, traded at about . Brent Crude, the global benchmark, traded near .
Saudi Arabia, which cut production by 500,000 barrels/day, called the OPEC+ move aimed at creating stability in the oil market.
Stock in U.S. oil production companies rose sharply with Pioneer Natural Resources (NYSE:PXD) and EOG Resources (NYSE:EOG) both up 5% in pre-market trading on April 3. Integrated oil companies Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) were up 4%.
Oil Stocks and Oil Prices: How High, How Long?
Even as the cut was announced Gabon, an African member of OPEC presently pumping 200,000 barrels per day, was preparing to launch production at . Exxon Mobil has begun producing from its fields off Guyana and is already delivering
.
The new discoveries and new production call into question how effective OPEC+ can be in maintaining high prices in the long term.
In the short run, the cut makes the Federal Reserve’s job of taming inflation . It also makes the administration’s decision for the Strategic Petroleum Reserve (SPR) a week ago, when WTI briefly fell below $73, look like a missed opportunity.
Both producers and consumers claim price stability is their goal, but prices have been . Oil traded at over $122/barrel last year, after Russia invaded Ukraine, and below $50/barrel during the worst of the 2020 Covid-19 lockdowns.
What Happens Next?
Bank of America (NYSE:BAC) predicted late last year oil prices could hit again this year. Most expect prices to average with China’s reopening driving much of the demand for oil.
The production cut will support the transition to renewables but will likely keep interest rates higher for longer than had been expected.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
