Some analysts don’t provide guidance on energy stocks because the outlook for oil and gas can be hard to gauge. But some unexpected news just gave Canadian energy stocks an unexpected boost.
Oil prices surged on Monday, April 3 after the Organization of the Petroleum Exporting Countries and their allies (OPEC+) shocked the market by announcing a voluntary cut to its output.
Why Did Oil Prices Jump?
OPEC+, which includes Russia, announced they would be cutting production by an additional 1.16 million barrels a day (bpd) starting in May. This comes on the heels of an announced 2.0 mbp day production cut by OPEC+ members back in November.
At the time, it was thought this would be the only production cut by the cartel. It wasn’t. Including the unexpected March 2023 production cut, total daily output will fall by 3.66 million bpd. That’s a huge reduction, accounting for around 3.7% of global demand.
West Texas Intermediate spiked eight percent in early trading on Monday, the biggest intraday move in more than a year. In late March, oil prices fell to near $70 per barrel, the lowest level in 15 months. But news of additional production cuts by OPEC+ have sent oil prices soaring to around $80 per barrel.
News of the production cut was actually good news for Canada’s commodity heavy TSX. Canada’s main stock index climbed to its highest closing level in almost one month, ending the day up 178.39 points, or 0.9%, at 20,278.28. This represented the seventh straight day of gains and the highest closing level since March 8.
Energy, which is the second largest sector on the TSX, accounts for 16.8% of the index’s total market capitalization. Financials is the largest, at 30%.
How High Could Oil Prices Go?
Crude prices are expected to climb a lot higher. The surprise cuts could see oil prices climb above $100 per barrel by this summer.
Those higher prices come at a time when the Bank of Canada, U.S. Federal Reserve, and other central banks are trying to tame persistently high inflation by aggressively raising their interest rates. This puts additional strain on the economy and creates a greater risk of an economic downturn, or recession.
Economic headwinds were expected to weigh against higher demand for crude oil and fuel, which will result in some volatility in oil prices, but the decision of OPEC+ to cut oil supplies from May onwards will continue to squeeze supply.
The global crude balance was already expected to become tight over the summer, and it is this dynamic that could see crude prices hit $110 per barrel later in the year.
First quarter earnings season is about to kick off in the coming weeks, with big banks being one of the first to report their earnings. These results will give us some indication into the overall health of the economy.
Learn-To-Trade.com, Canada’s Leader in Stock Market Trading Courses
Learn-To-Trade.com is Canada’s oldest and leading provider of stock market trading courses. Over the years, our trading professionals have taught investors of every skill level how to trade more confidently and profit more consistently—no matter what’s happening on Bay Street or Wall Street.
At Learn-To-Trade.com, we also understand that investors learn at their own pace and/or may want to spend more time with a certain investing strategy. That’s why we provide a unique, Lifetime Membership that allows you to re-attend any part of the program as often as you’d like.
To learn more about Learn-To-Trade.com’s stock market trading courses, contact us at 416-510-5560 or by e-mail at info@learn-to-trade.com.
