Oil prices are experiencing their sixth consecutive weekly gain, marking the longest winning streak in over a year. This upward trend in prices can be attributed to Saudi Arabia’s decision to extend its production cuts into the fall season. Additionally, signs indicate that oil demand is surpassing supply, further bolstering prices.
This positive movement in oil prices has had a significant impact on oil stocks, which had previously been underperforming the broader market this year, after performing exceptionally well in 2021 and 2022. The SPDR S&P Oil & Gas Exploration & Production exchange-traded fund (XOP) has seen a 13% increase this year, compared to a month ago when it was trading flat. Some oil and gas producers have experienced even greater success. For example, Ovintiv (OVV) based in Denver surpassed both revenue and earnings expectations for the second quarter, resulting in a 29% increase in its stock value over the past month. Larger energy companies, which tend to have more diversified portfolios compared to their smaller counterparts, have seen a more limited boost in stock prices from the rise in oil prices. For instance, Exxon Mobil stock (XOM) has only increased by 1.9% within the past month.
Saudi Arabia recently made an announcement stating that it will continue to reduce oil production by an additional one million barrels per day until September and possibly beyond. Furthermore, Russia will decrease its production cuts from 500,000 barrels in August to 300,000 barrels in September. These combined measures have generally had a positive impact on crude prices.
Helima Croft, an analyst from RBC Capital Markets, noted that Saudi Arabia’s actions serve as a warning to those skeptical of the market’s potential. As a result of these developments, Brent crude, an international benchmark, increased by 1.6% on Friday, reaching $86.53 per barrel and setting the stage for another weekly gain.
Additionally, the United States reported a significant decrease in oil storage levels, with inventories dropping by a record-breaking 17 million barrels in the latest week. This sharp decline indicates that demand is surpassing supply at a rapid pace. In response to rising prices, the Biden administration has canceled its plans to purchase six million barrels of oil for the strategic petroleum reserve.
In conclusion, oil prices continue to rise, benefitting both oil stocks and the overall market. The extension of production cuts by Saudi Arabia, along with the decreasing oil storage levels and rising demand, support this positive trend.