What happened
Shares of energy giant ConocoPhillips (COP 1.23%) jumped nearly 5% in early trading Tuesday, and remained up 3% as of 12:20 p.m. EDT. The fact that analysts at Wells Fargo tweaked their price target on the stock higher this morning might have helped. But at the same time as Conoco shares moved higher, so did shares of rival oil producers Cenovus Energy (CVE 0.92%), which were up 7.4%, and Marathon Oil (MRO 0.36%), up 12.2% -- without any analyst comments about either today.
Image source: Getty Images.
So what
The Wall Street Journal is reporting that in Vienna, the OPEC group of oil-producing nations, plus the OPEC+ nations such as Russia that also produce oil, have just agreed to increase production.
The OPEC+ increase in production -- about 450,000 extra barrels per day -- will begin next month. Simultaneously, Saudi Arabia will be rolling back some of the voluntary production cuts it has made, which total 1 million barrels per day.
While more oil supply might sound like it would be bad news for oil companies (because it will lessen supply constraints that have been supporting prices), the OPEC+ decision to lessen restrictions on production is also indicative of the organizations' confidence that oil demand is bouncing back.
Now what
Indeed, seeing the scale of the production now coming back on line (in total, the group is talking about returning 2 million barrels per day of previously cut production to the market by the end of July), demand must be even more robust than many investors realized. After cutting 9.7 million barrels per day last year in the early part of the pandemic, OPEC+ now envisions bringing back at least 4 million of those.
Yet even so, oil markets are unfazed. According to OilPrice.com, West Texas Intermediate crude prices jumped 2.1% today, to nearly $68 a barrel, and Brent crude is up more than 1.2%, rising past $70 a barrel.
As the Journal explains, the Organization for Economic Cooperation and Development is predicting a surge in global production as economies emerge from recession, with economic growth around the globe estimated at 5.8% this year. With demand picking up, economists are shifting their worries from "Do we have too much oil production?" to "Do we have enough oil to satisfy demand?"
And that way of thinking is very good for oil prices, and for oil stocks, too.
