While the ongoing news about the Senate runoff race in Georgia remains the biggest story in the financial news media, Tuesday saw a number of other interesting developments worth noting. For traders, perhaps the most interesting piece of news came from the energy sector, with oil prices surging to $50 per barrel following a crucial OPEC meeting.
Prices were up around 4.5% following news from OPEC, in which it will be keeping production at its current rate for the time being before slightly upping it towards the end of the first quarter. Apparently, Russia had wanted to increase output by an extra half a million barrels per day, but was dissuaded from taking this approach.
For the oil markets, it was the highest price seen from the energy commodity since February. Back then, the emergence of the coronavirus pandemic coupled with an unfortunately timed Russia-Saudi price war ended up causing prices to plummet to negative territory for the first time in history. Despite what was projected to be weak demand for the commodity, oil has since managed to do impressively well in the current economic climate, having more or less recovered.
Other, more bearish energy traders have also said that these current oil prices are a little too high. The argument is that prices have shot up excessively due to too much optimism surrounding the new COVID-19 vaccines, and the hopes this would be business returning to normal for industries like tourism, aviation, etc. However, whether or not this is the case is yet to be seen, but oil is sitting almost exactly at $50 per barrel at the moment.
However, what is undeniable is that oil producers are more divided than ever, with different groups having different visions for the future of the market. Some want to keep production low, while others are divided on ramping up output. Although they’ve come to a temporary agreement in the short-term, it’s possible that future meetings might not reach a definite agreement such as this one.
“I view this type of an ‘agreement’ as an indication that it is getting harder to get OPEC+ members in line and keep production constrained while demand looks threatened by ongoing lockdowns and slow vaccination roll out. WTI traded briefly above $50 following the headlines, but I suspect a more negative interpretation of today’s meeting may cause crude to fail at $50,” said Rebecca Babin, senior energy trader at CIBC, in her take on what happened.
As to be expecting, some of the biggest movers on Tuesday were energy stocks. Companies like SM Energy (NYSE: SM) were up as much as 20.1%, not so much on any particular news announcement, but just riding the coattails of this general oil bull run that oil has been going on. Peabody Energy (NYSE: BTU) is also up around 16.7%, another big winner for exactly the same reason. Occidental Petroleum (NYSE: OXY) is up approximately 10.5% as well on Tuesday.
Oil giants such as Shell (NYSE: RDS.A) and BP (NYSE: BP) are both up around 7.0% as well on the news, pretty impressive gains for such large companies.
