The energy group easily tops Friday’s S&P sector leaderboard, +3.2%, as crude oil prices jump following Russia’s plan to slash oil production by 500K bbl/day in a retaliatory move against Western price caps.
The announced cut amounts to ~5% of Russia’s latest crude oil output, which the International Energy Agency estimates fell to 9.77M bbl/day in December.
Russia’s Deputy Prime Minister Alexander Novak said the cut will be calculated from actual output levels, not from Russia’s quota under the OPEC+ production agreement; the move was not made in consultation with OPEC+.
U.S. WTI crude (CL1:COM) for March delivery +2.2% to $79.78/bbl and April Brent crude (CO1:COM) +2.2% to $86.34/bbl.
Eleven of Friday’s 15 biggest gainers on the S&P 500 are in the energy group: Valero Energy (VLO) +5.4%, Marathon Oil (MRO) +5.2%, APA Corp. (APA) +4.8%, Devon Energy (DVN) +4.7%, EOG Resources (EOG) +4.3%, Marathon Petroleum (MPC) +4.2%, Phillips 66 (PSX) +3.9%, Diamondback Energy (FANG) +3.8%, ConocoPhillips (COP) +3.5%, Exxon Mobil (XOM) +3.5%, Schlumberger (SLB) +3.5%.
ETFs: (NYSEARCA:XLE), (XOP), (VDE), (OIH), (CRAK), (NYSEARCA:USO), (BNO), (UCO), (SCO), (DBO), (DRIP), (GUSH), (USOI), (NRGU)
Some observers believe Russia’s cuts are a sign the country may be having trouble unloading its energy products, but Manish Raj at Velandera Energy Partners disagrees, saying the cut is not about Russia’s inability to place its products in the market but about shedding the price discount buyers are demanding.
“Russia has been able to sell every barrel it produces, but is annoyed by hefty discounts everyone is asking,” Raj told MarketWatch. “By cutting back volumes, Russia wants to signal that it would rather forego volume than reduce its price.”
The energy sector is on track to gain ~4% for the week after trailing all groups last week, falling alongside crude oil prices weighed by rising U.S. inventories.