Oil price surge could be bad news for Qantas Airways Limited

The news that the Organisation of Petroleum Exporting Countries (OPEC) agreed to cut its production yesterday lit a fire under S&P/ASX200 (INDEXASX: ^AXJO) (ASX: XJO) listed oil and gas companies.

source: Google Finance

source: Google Finance

Oil Search Limited (ASX: OSH)Santos Ltd (ASX: STO) and Woodside Petroleum Limited (ASX: WPL) all rose notably on the news. Origin Energy Ltd (ASX: ORG) also had a strong day, while Beach Energy Ltd (ASX: BPT) is up more than 10% since the start of the week. The gains appear unlikely to continue today though, as while Oil Search is up 3%, other stocks are flat or slightly down.

In our coverage yesterday, we noted that although news of a production cut excited investors, the size of the cut was hardly significant and, in fact, higher oil prices (as a result of lower production) could do little more than inspire many producers with idle capacity to get back into the game – increasing supply and pushing prices back down.

As an aside, if prices do rise significantly and stay there (my money’s against this) it would be bad news for the likes of Qantas Airways Limited (ASX: QAN), where lower fuel costs have been an important contributor to that company’s improved performance in recent years.

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Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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