BP (BP.L) and Shell (RDSB.L) rose in late afternoon trading on the FTSE (^FTSE) on Tuesday, amid reports that the Organisation of the Petroleum Exporting Countries (OPEC) and its allies were close to agreeing a freeze on oil output.
OPEC is nearing a consensus, according to Bloomberg, after rejecting Russia’s proposal for a production increase.
If confirmed, any agreement would be a surprise to the market, which had been expecting an output increase of 500,000 barrels a day for February.
“The only outcome that could serious threaten prices is a total collapse but that's extremely unlikely, with another compromise likely to keep all sides happy for now,” said Craig Erlam, senior market analyst at OANDA Europe.
Rising oil prices boosted producers in turn. BP (BP.L) ended the day up over 7% in London.
Shell (RDSB.L) also saw a steep climb on the news, up over 6%.
A deal to hold production unchanged at current levels would be regarded as a coup for Saudi Energy Minister Prince Abdulaziz bin Salman, who has focused on keeping a tight rein on output.
The fast-spreading, newly-discovered variant of COVID-19 has led oil market players to be increasingly cautious about global economic recovery efforts, as most of the world continues to struggle to contain the spread of cases.
New lockdowns have been put in place across the UK and Europe in recent days. England’s new rules will last until at least mid-February, with Scotland’s reviewed at the end of January. The UK reported a record 58,784 cases on Monday, in addition to a further 407 deaths within 28 days of a positive test. Germany is extending its lockdown until 31 January.
Despite the dramatic rise in oil stocks, prices may not make much of a recovery in 2021 in light of the new COVID-19 variant and subsequent travel restrictions that will limit the use of gasoline-fuelled transportation, such as cars and airplanes.
A Reuters poll of 39 economists and analysts conducted in the second half of December forecast Brent crude prices would average $50.67 per barrel next year.
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