First published: 4:03AM EST, Last updated: 3:12PM EST
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Oil prices jumped on Monday, with U.S. West Texas Intermediate crude futures gaining 6.28% to close at $80.42 per barrel. Major oil stocks, including Occidental Petroleum (OXY), ExxonMobil (XOM), Chevron (CVX), and Apa Corp (APA), also surged.
Oil prices jumped after Saudi Arabia and other OPEC+ producers announced surprise output cuts of around 1.16 million barrels per day (bpd). Reacting to the cuts that start in May and last till the end of this year, a U.S. National Security Council spokesperson said, “We don’t think cuts are advisable at this moment given market uncertainty – and we’ve made that clear.”
Top oil producer Saudi Arabia, which is slashing its production by 500,000 bpd, called the move “a precautionary measure aimed at supporting the stability of the oil market.” Meanwhile, Iraq, the United Arab Emirates (UAE), and Kuwait are reducing their output by 211,000 bpd, 144,000 bpd, and 128,000 bpd, respectively. Further, Kazakhstan, Algeria, and Oman are reducing their production by 78,000 bpd, 48,000 bpd, and 40,000 bpd, respectively.
On Sunday, Russia’s Deputy Prime Minister Alexander Novak said that the country would extend a voluntary cut of 500,000 bpd until the end of 2023. Moscow had announced its production cuts in February following the introduction of Western price caps. The cuts were supposed to last until March, but last month Russia said that the cuts would continue until the end of June.
The most recent production cuts by OPEC+, which comprises the Organization of the Petroleum Exporting Countries and 10 allies led by Russia, would be on top of the 2 million bpd cut announced by the group in October 2022. Reuters estimates that the total cuts of 3.66 million bpd represent 3.7% of global demand.
Latest Production Cuts to Further Annoy U.S.
The group’s production cut last year had annoyed the Biden administration, as it was already struggling to fight inflation. The rise in energy prices in reaction to the latest output cuts by OPEC+ might adversely impact investor sentiment, overshadowing the stock market’s strong end to March following Friday’s slower reading for core U.S. inflation.
The U.S. has been arguing that oil prices need to be brought down to tame inflation and spur economic growth. The Biden administration believes that lower prices will also ensure that Russia doesn’t earn more revenue to use in the Ukraine war. Moreover, President Joe Biden has often criticized oil giants for using the enormous profits they made last year due to surging oil prices to boost shareholder returns rather than increasing production to bring down prices at the pump.
Following the news of the latest production cuts, Goldman Sachs lifted its forecast for Brent to $95 a barrel by the end of 2023 and to $100 for 2024. “While surprising, this cut reflects important economic and likely political considerations,” said analysts at Goldman. Oil prices have been volatile over the recent weeks on demand concerns.
Oil Stocks to Gain from OPEC+ Production Cuts
Here is a list of some of the energy stocks that are expected to gain from the production cuts by OPEC+:
- Exxon Mobil (XOM)
- Chevron (CVX)
- ConocoPhillips (COP)
- Shell (SHEL)
- BP (BP)
- Occidental Petroleum (OXY)
- Devon Energy (DVN)
Let’s have a look at Wall Street’s ratings for these stocks.
