What: Shares of RigNet (NASDAQ:RNET) jumped 12% by 3:00 p.m. EST on Wednesday. Fueling the rally was a rebound in the price of oil after Iran's oil minister praised a proposed production freeze by Saudi Arabia and Russia.
So what: Crude oil jumped 5.6% to close at just more than $30 a barrel today after a meeting between Iran and some of its OPEC counterparts. While Iran didn't commit to freezing its production, it praised the proposed freeze at January levels that was recently agreed to by OPEC members Saudi Arabia, Qatar, and Venezuela, as well as non-member Russia. Further, it also didn't completely dismiss the request, which is seen by some as a sign that a deal could still be brokered to at least tame the amount of production Iran brings to the market now that Western sanctions have been lifted.
The reason this news is driving RigNet's stock higher is because it suggests that OPEC is finally getting serious about doing something to end the oil rout. That would hasten the oil market's rebalancing efforts instead of exacerbating the problem, which is what OPEC has been doing over the past year by opening up the floodgates of its oil production. Further, by putting a bottom underneath the oil price, it would enable oil companies to better plan their activities, which could eventually lead to better operating conditions for RigNet.
Now what: A plan to freeze production is a start, but the industry still has a lot of work to do before conditions return to some sense of normalcy. Further, the proposed freeze is just that, and it could end up not being enacted because it requires Iran and Iraq to both join in on the freeze. Suffice it to say, RigNet and the rest of its oil industry brethren aren't out of the woods just yet.