Please ensure Javascript is enabled for purposes of website accessibility

Crude Oil Spikes on Expected OPEC Supply Cut

By Jason Hall - Mar 2, 2020 at 2:04PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Saudi Arabia is leading the efforts to ensure stability in global oil markets, as coronavirus threatens to drive demand lower.

Crude oil prices are surging on March 2, following more than a week of selling as the global coronavirus outbreak threatens to slow the world's economic growth. In early afternoon trading, both Brent and West Texas Intermediate futures were up more than 4.5%. 

Screenshot showing oil and gas prices climbing.

Image source: Getty Images.

This sharp move upwards -- one of the biggest single-day gains for crude futures this year -- reverses the trend for oil, which had experienced six consecutive days of falling prices, and comes following news on Friday that Saudi Arabia planned to propose a significant cut to OPEC's oil production at the group's next meeting, which will take place this week. 

Stabilizing a market in freefall

Saudi Arabia is reportedly going to recommend that OPEC, the group of state-controlled oil producers that produce about 40% of the world's oil, cut its total output by 1 million barrels. This recommendation comes at a time when markets are in a frenzy over fears that COVID-19, the coronavirus disease that's rapidly spreading across the world, would drive an already-oversupplied oil market into an even worse situation. 

In mid-February, the International Energy Agency warned that global oil demand was likely to fall in the first quarter due to China's steps to control the spread of COVID-19. In the weeks since, investors have heavily sold not just crude oil, but oil stocks.

Shares of oil majors including ExxonMobil (XOM 1.98%)BP (BP 3.18%)Chevron (CVX 1.64%), and Total SA (TTE 4.35%) have all fallen by double-digits since early February, and have lost 20% or more of their value from their early 2020 highs:

XOM Chart

XOM data by YCharts

Today's sharp move upwards for oil prices is a welcome reversal, but positive sentiment is more muted for oil stocks. The oil majors are only gaining between 1.4% and 2.3% on the day. It seems that investors are aren't ready to start betting that today's oil price gains will prove sustained. Even after today's gains, crude oil prices are still down more than 15% from where they started 2020. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Exxon Mobil Corporation Stock Quote
Exxon Mobil Corporation
XOM
$86.90 (1.98%) $1.69
Chevron Corporation Stock Quote
Chevron Corporation
CVX
$144.77 (1.64%) $2.34
BP p.l.c. Stock Quote
BP p.l.c.
BP
$28.23 (3.18%) $0.87
TotalEnergies Stock Quote
TotalEnergies
TTE
$52.34 (4.35%) $2.18

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
336%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.