December 01, 2016 has been a bright day for the Australian Energy Stocks. While S&P/ASX 200 was up 1.1 per cent, the S&P/ASX 200 Energy index surged about 7.2 per cent and added value worth $5 billion to the market. This came at the back of the oil price jump of about 9 per cent driven by the OPEC deal on production cut. It is worth noting that the surge in energy stocks has been the best gain in last eight years. The Chinese manufacturing activity that enhanced in November (in terms of Purchasing Managers’ Index of 51.7 against 51.2 of October) also gave a boost to the scenario.
 
Coming back to what happened at the OPEC meeting, the members could bring some harmony in terms of collective steps to ease the oil supply glut of last few years. Particularly, there has been anagreement for a cut of almost 1.2 million barrel a day.Saudi Arabia, Kuwait, United Arab Emirates and Qatar, are ready to have bulk production cuts and are eying on oil price recovery to keep up to their market share. As per the OPEC figures, Saudi will reduce output by 486,000 barrel a day while the remaining three will collectively reduce output by about 300,000 barrel a day.Iran and Iraq have also agreed for the cuts but at a smaller scale. Iran has been allowed to have an output baseline of 3.975 million barrel a day. Then Venezuela to Angola members seem to have agreed to cut a part of the production. Nigeria and Libya sit out of the deal. On the other hand, even the non-OPEC oil producer, Russia, is ready to make half of the 600,000 barrel a day of cut.
 

S&P AUST Index ASX200 Energy Index (Source: Financial Times)
 
The Australian Energy sector outperformers included Santos Ltd - up 11.7 per cent, Beach Energy Ltd - up 11.2 per cent, and WorleyParsons Ltd - up 9.94 per cent. Even the four banks got some uplift at the back of positive market sentiments. The agreement seems to bring some stability to recover from the investment slump that was seen in the sector for some time but there is still a long way to go.

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