Energy stocks surge on oil deal

OPEC deal likely to reverberate beyond big drillers and oil-rich nations to small U.S. shale firms.

Energy companies powered to big gains Wednesday, leading the broader stock market higher, on reports that OPEC nations were moving closer to an agreement to cut oil production. Stocks switched between gains and losses for most of the day, and most industries did not move much.

Energy companies surged at 2 p.m. Eastern time on reports that a deal was close. A two-year slump in oil prices has decimated profits at energy companies. The energy sector made its biggest gain since January.

After stock trading closed, OPEC said it had reached a preliminary deal to reduce production for the first time in eight years.“It just creates a lot of optimism that the worst is over for investors,” said Brian Youngberg, energy analyst at Edward Jones.

The Dow Jones industrial average rose 110.94 points, or 0.6 percent, to 18,339.24. The Standard & Poor’s 500 index added 11.44 points, or 0.5 percent, to 2,171.37. The Nasdaq composite edged up 12.84 points, or 0.2 percent, to 5,318.55.

A little more than two years ago, a barrel of oil cost around $100. But a huge supply glut built up as the U.S. and other countries produced more and more oil and the global economy slowed, which hurt demand. Oil hit a low of $26 a barrel in February and has traded between $40 a $50 a barrel since April, but investors doubt the price will rise further without limits on production. OPEC produces more than a third of the world’s oil.

Benchmark U.S. crude jumped $2.38, or 5.3 percent, to $47.05 a barrel in New York. Brent crude, the international standard, rose $2.72, or 5.9 percent, to $48.69 a barrel in London.Exxon Mobil picked up $3.66, or 4.4 percent, to $86.90 and Chevron leaped $3.17, or 3.2 percent, to $102.15.

“The cut is clearly bullish,” said Mike Wittner, head of oil-market research at Societe Generale SA in New York. “The number of actual barrels that will be taken off the market is unclear. What’s much more important is that the Saudis appear to be returning to a period of market management.”

The deal will reverberate beyond the Organization of Petroleum Exporting Countries. The agreement will brighten the prospects for the energy industry, from giants like Exxon Mobil Corp. to small U.S. shale firms, and boost the economies of oil-rich countries such as Russia and Saudi Arabia. OPEC’s next formal summit is on Nov. 30.

Shares of oil producers rallied on the prospect of an OPEC agreement. Exxon, the world’s largest oil company by market value, gained 4.4 percent to close at $86.90. The S&P Oil & Gas Exploration and Production Select Industry index climbed 6.3 percent, the most since April.

Mining and industrial companies also climbed. The Dow was aided by a big gain for heavy machinery maker Caterpillar, which climbed $3.71, or 4.5 percent, to $86.59.

Phone companies suffered some of the largest declines. AT&T fell 61 cents, or 1.5 percent, to $40.85 after a UBS analyst downgraded the company to “Neutral” from “Buy.” Analyst John Hodulik said profits will get squeezed as the companies offer trade-in deals to try to win customers. He cut his profit forecast for Verizon, which lost 43 cents to $52.06.

Nike’s profit and sales were stronger than analysts expected, but the athletic apparel maker’s stock slipped $2.09, or 3.8 percent, to $53.25 as investors worried about challenges including slower orders in North America.