Shares in companies operating in the oil sector are going wild on Monday, as the price of crude oil surges following the announcement of a historic deal between Saudi Arabia and Russia.
Early on Monday, the price of oil jumped more than 5% after the deal between OPEC and non-OPEC countries was announced by Saudi Oil Minister Khalid al-Falih late on Saturday. The deal will cut production with the aim of boosting prices and making production more profitable.
At the core of the deal was an agreement between Saudi Arabia, the world’s biggest oil producer and a core member of the OPEC group, and Russia, which led a consortium of other non-OPEC countries, to cut production by more than 500,000 barrels a day.
Saudi Arabia also surprised the market with deeper than expected cuts in its own domestic production, sending oil past $52 a barrel as the market opened.
This, in turn, has pushed stocks for companies operating in oil, and the broader energy sector, skyward on Monday morning. The STOXX Europe Oil & Gas index, which tracks a broad group of Europe’s biggest oil and gas companies, is up more than 2.4% around 8.40 a.m. GMT. Here’s the chart:
Smaller oil producers, as well as exploration companies are the biggest beneficiaries of oil’s rally on Monday, with FTSE 250 oil and gas explorer Tullow Oil climbing almost 9% in the first hour of trade. Here is how that looks:
The relationship between oil stocks and oil is a pretty straightforward one. When the price of oil climbs, it means companies producing the world’s most important commodity can make more cash, more easily, which for investors is obviously something that is welcome.
That is especially true in the current climate, where subdued oil prices — which remain around half of what they were in mid-2014 — have hurt the finances of pretty much every single oil producer.