Crude oil prices shot up by almost 6% on Wall Street on Wednesday, after Organisation of the Petroleum Exporting Countries agreed to cut production, reported Reuters. The surging oil prices, in turn, helped the overall energy index jump up by 4.34%, the highest since January.
Among the highest gainers were Chevron whose shares rose by 3.20%, Exxon Mobil jumped by 4.40% and Caterpillar Inc soared 4.48%. The last time oil production was cut was in 2008. Seven out of the 11 major S&P sectors traded higher. In Asia and its surrounding regions, Japan's Nikkei rose 0.9 percent, Australian shares went up by 0.6 percent and South Korea's Kospi by 0.7 percent.
The Opec deal was made in Algeria on Wednesday after the 14 major oil exporting nations decided to allay fears of oversupply, reported BBC. However, the finer nuances of the agreement will be finalised in November. The cut is likely to reduce output by around 700,000 barrels per day. However, it is not an evenly distributed cut because Iran will be allowed to increase production. Earlier attempts to cut production failed because of disagreements between Iran and Saudi Arabia.
Iran's Oil Minister Bijan Zanganeh said, "Opec made an exceptional decision today [Wednesday]." Nigerian Oil Minister Emmanuel Ibe Kachikwu said it was a "very positive deal". Algerian Energy Minister Noureddine Bouarfaa echoed him, saying, "The decision was unanimous, and without reservations." OPEC has been producing at record levels as its members compete among themselves for buyers. However, according to Wall Street Journal, the oversupply brought down oil prices hugely from $110 per barrel to $40 a barrel this yera.
Declining oil prices have led to losses for the energy producers in United States for many quarters. Mark Kepner, Managing Director at Themis Trading in New Jersey told Reuters, “The energy sector has been the biggest drag on earnings for the past year and a half or two years, and if you can get some stability there, all of a sudden earnings start to look a lot better." Besides, the upcoming US presidential election in November is also likely to impact the stocks.