National Post (National Edition)
OIL `HAPPY HOUR' as Saudis PLEDGE CUT
SURPRISE ANNOUNCEMENT PUSHES TSX TO HIGHEST LEVEL SINCE FEBRUARY
Oil surged to its highest since February after Saudi Arabia pledged additional, voluntary oil output cuts of one million barrels per day (bpd) in February and March as part of a deal under which most OPEC+ producers will hold production steady in the face of new coronavirus lockdowns.
Saudi is going beyond its promised cuts as part of the OPEC+ group of producers to support both its own economy and the oil market, Energy Minister Prince Abdulaziz bin Salman said on Tuesday.
Saudi Arabia’s unilateral cut is “a groundbreaking statement that shows the oil giant is not only ready to bite the bullet and keep taps tight, but it also recognizes the short-term demand risk and is ready to protect its export prices by tightening supply,” said Bjornar Tonhaugen, head of oil markets at Rystad Energy.
“If there is one way to describe what its voluntary cut means for the market, ‘happy hour’ is a pretty fitting term.”
Benchmark Brent oil prices rose on the news, trading up almost 5 per cent above US$53 per barrel at 20:23 GMT. Futures in New York rose 4.9 per cent on Tuesday after briefly topping US$50 a barrel for the first time since the pandemic triggered widespread lockdowns and sent fuel demand plunging.
There had been concerns that the oil cartel would start to normalize production even as countries again go into COVID-19 lockdowns, said Greg Taylor, chief investment officer of Purpose Investments.
“But it feels now that OPEC’s playing ball and trying to get the price higher and that’s really showing up in the price of the oil companies today,” he said in an interview.
Canada's main stock index rose to its highest level since February as the energy sector was powered by the surging oil prices. The Canadian dollar traded for US78.70 cents, its highest level in almost three years and compared with US78.43 cents on Monday.
After hovering around US$40 for much of the summer, rising to nearly US$50 a barrel is good for oil producers whose business models work better if they start generating more cash.
Taylor said many investors have ignored the energy sector over fears about the commodity.
“But if the price can stay above US$50, these companies are incredibly cheap and really could be setting up for some good gains in the year.”
Several Canadian oil producers moved higher Tuesday with Crescent Point Energy Corp. up 9.6 per cent, Vermilion Energy Inc. up 9.1 per cent, Whitecap Resources Inc. up 8.9 per cent and Suncor Energy Inc. 8.1-percent higher.
Eight of the 11 major sectors of the TSX were higher, helping to push the S&P/ TSX composite index to close 153.82 points higher to 17,681.59. It reached an intraday high of 17,694.40 that's 1.5 per cent from its record high set in February.
The deal — under which most producers will hold output steady — followed two days of talks by OPEC+, which groups OPEC and others including Russia.
Two members — Russia and Kazakhstan — will be allowed to bump up their output by a modest combined 75,000 bpd in February and a further 75,000 bpd in March.
Their increases could frustrate OPEC+ peers similarly looking to pump more, but it was apparent the two were keen to avoid non-maintenance winter shutdowns, which at aging wells in Russia for example could prove uncommercial to restart, Rystad's Tonhaugen noted.
Russia and Kazakhstan had pushed for the group to raise production by 500,000 barrels per day (bpd) for February, as it had done for January, while others wanted no increase.
OPEC+ has warned that bearish risks are on the rise as “the re-implementation of COVID-19 containment measures across continents, including full lockdowns, are dampening the oil demand rebound in 2021.”
Prince Abdulaziz urged caution, noting still-fragile fuel demand and the unpredictable impact of new variants of the coronavirus. He said the voluntary cut would help prevent stockpiles building up.
New variants of the coronavirus first reported in Britain and South Africa have since been found in countries across the world.
OPEC+ producers have been curbing output to support prices and reduce oversupply since January 2017.
As COVID-19 hammered demand for gasoline and aviation fuel and slashed Brent oil prices, OPEC+ was forced to boost its output cuts to a record 9.7 million bpd in mid-2020.
January's 500,000 bpd rise in output narrowed OPEC+ cuts to 7.2 million bpd.
Tuesday's agreement, including Saudi Arabia's voluntary reduction, will widen the cuts to 8.125 million bpd in February before they narrow to 8.05 million in March, based on OPEC figures and the Saudi minister's comments.
April volumes are to be decided at an OPEC+ meeting in early March.
IF THE PRICE CAN STAY ABOVE US$50, THESE COMPANIES ARE INCREDIBLY CHEAP.