Saudi Oil Production Cut Sends Oil Search Share Price Up (ASX:OSH)

Today, shares in Oil Search Ltd [ASX:OSH] have jumped thanks to a surprise cut in oil production announced by Saudi Arabia.

At time of writing the OSH share price is up 4.76% or 17.5 cents to trade at $3.86 per share.

ASX OSH Share Price Chart

Source: Tradingview

Saudi Energy Minister Prince Abdulaziz bin Salman said the kingdom would make an extra cut of one million barrels a day.

The pledge could make for a tighter market than traders had been anticipating, and sent crude oil surging to a 10-month high in New York — trading close to US$50 per barrel.

Resurgent virus could be good for oil

It has been a decent start to the new year for oil and gas company’s like OSH, Santos Ltd [ASX:STO], and Woodside Petroleum Ltd [ASX:WPL], with crude and LNG spot prices surging.

Yesterday we took a brief look at the STO share price and the short-term outlook for LNG.

The Saudi’s will cut oil output in February and March, carrying a greater burden of OPEC+ cuts while others hold steady or make small increases.

Russia and Kazakhstan will collectively increase production by 75,000 barrel per day.

So, why are we seeing output being cut ahead of the vaccine roll out?

It could be that Saudi Arabia is still worried about the impact of Europe’s resurgent coronavirus pandemic on oil demand.

We’ve just seen England enter its toughest lockdowns to date.

In a brand new report, market expert Vern Gowdie warns of the dangers waiting in a post-COVID-19 world. Plus, he outlines the steps you should take now to protect your wealth. Learn more.

Though, I’d also wager that the Saudi’s are keen to avoid a new price war with Russia that saw the oil price fall below $0 for the first time.

For traders, the new production agreement will mean the global market will get far less supply than anticipated.

Meaning we could see crude oil futures continue to surge over the coming months.

Is now the right time to buy Oil Search shares?

It’s crazy the difference one day can make on the stock market.

Yesterday the outlook for oil wasn’t looking too hot — not bad, just not great seeing as the price per barrel was already hovering around price targets.

Now, oil is looking like it could smash those targets in the first month of 2021.

It is worth being cautious though.

OPEC+ will now meet every month this year to fine-tune production levels more precisely, rather than just a few times a year.

Meaning we could see more abrupt changes in oil production as the coalition attempts to steer the oil price recovery.

And 2021 could be just as tumultuous.

When China — the world’s largest oil importer — locked down in February last year, oil demand dropped 20%.

Now I don’t know the chances of that scenario happening again, but with clusters of the virus rearing up over Europe, it could be a challenge to keep the oil price steady without frequent output regulation.

Russia is already pushing for a 500,000 barrel a day output hike next month, though this is being opposed by most other members, it does show fragility of the oil market currently.

If you are searching for stocks that have been left undervalued by the 2020 crisis, then why not check out Editor Greg Canavan’s free report: ‘Five Bounce Back Stocks to Consider before the Market Recovers’. You can access it here.


Lachlann Tierney,

For The Rum Rebellion

Lachlann Tierney is a writer for The Rum Rebellion and has been investing for nearly a decade. With a Masters of Science from the London School of Economics, he brings a sound understanding of global markets to his writing. Lachlann is interested in emerging technologies, energy solutions and helping people invest their money wisely. 

The Rum Rebellion