What happened
Things are looking ugly for tech stocks on Tuesday, with the tech-heavy Nasdaq down 1.7% as of 2:35 p.m. ET. Energy stocks, on the other hand, are coming up roses, as the "OPEC+" cartel of oil-producing nations (plus Russia) delivers some good news for oil prices.
Result: All across the oil sector, energy stocks are bouncing higher. Independent oil and natural-gas producer Centennial Resource Development (PR -2.05%) is gaining 10.2%, oil services company Core Laboratories (CLB) is gaining 5.6%, and oil major ConocoPhillips (COP -0.41%) just tacked on a 4.5% gain.
Image source: Getty Images.
So what
Granted, some gains in oil stocks were probably to be expected today. After all, according to data from OilPrice.com, the cost of a gallon of WTI crude just jumped 1.2%, while Brent crude is up 1.3%. On a dollar-per-barrel basis, WTI crude oil now costs just over $77, and Brent crude, $80. And this may be only the beginning.
As Reuters points out, oil prices are rising today despite the fact that OPEC+ just agreed to increase production quotas in February by 400,000 barrels per day, as previously planned. Ordinarily, Economics 101 teaches us that an increase in oil supply should be expected to cause a decrease in oil price -- but the opposite happened today.
Now what
Why is that? Quoting various energy analysts, Reuters explains that "the oil market ... is making the bet that OMICRON is the beginning of the end of COVID-19."
In deciding to hold firm to its decision to raise production, OPEC+ implicitly predicted that "the Omicron coronavirus variant would have only a mild impact on demand" going forward. Had oil producers feared that omicron was going to significantly curtail economic activity, depressing demand for oil, they'd likely have held off on increasing production of the stuff. Therefore, the fact that they went ahead and approved an increase implies they think omicron will ultimately turn out to be no big deal.
Are they just whistling past the oilfield, though? Not necessarily.
Britain's vaccine minister just confirmed that in the U.K., at least, patients infected with omicron are "showing less severe symptoms than" was seen in patients infected with the delta variant. In France, Finance Minister Bruno Le Maire said he sees no risk of omicron "paralyzing" the French economy, which he still expects to grow 4% this year. And generally speaking, "manufacturing activity remained strong in December" all around the world, even in the face of omicron, reported Reuters.
The closer all these authorities are to being right, the more likely we'll see higher oil production and higher oil prices and higher oil stock prices in the weeks and months to come.
