The news that the Organisation of Petroleum Exporting Countries (OPEC) agreed to cut its production yesterday lit a fire under S&P/ASX200 (INDEXASX: ^AXJO) (ASX: XJO) listed oil and gas companies.
Oil Search Limited (ASX: OSH), Santos Ltd (ASX: STO) and Woodside Petroleum Limited (ASX: WPL) all rose notably on the news. Origin Energy Ltd (ASX: ORG) also had a strong day, while Beach Energy Ltd (ASX: BPT) is up more than 10% since the start of the week. The gains appear unlikely to continue today though, as while Oil Search is up 3%, other stocks are flat or slightly down.
In our coverage yesterday, we noted that although news of a production cut excited investors, the size of the cut was hardly significant and, in fact, higher oil prices (as a result of lower production) could do little more than inspire many producers with idle capacity to get back into the game – increasing supply and pushing prices back down.
As an aside, if prices do rise significantly and stay there (my money's against this) it would be bad news for the likes of Qantas Airways Limited (ASX: QAN), where lower fuel costs have been an important contributor to that company's improved performance in recent years.
