OPEC, Allies Near Agreement for Small Production Increase

The Organization of the Petroleum Exporting Countries and its allies are closing in on an agreement to modestly boost their collective oil output by as much as 500,000 barrels a day starting next month, people familiar with the matter said.

The agreement would mark a compromise among some of the world’s biggest producers as they meet later Thursday to formalize a deal.

The compromise bridges differences between the producers over whether the time was right to start rolling back cuts they and oil-producing allies agreed to earlier in the year in an effort to stabilize prices. Earlier this week, OPEC was leaning toward recommending keeping existing cuts in place for as much as three more months, according to people familiar with their deliberations. That ran up against opposition from some members who wanted to start pumping again as oil prices begin to recover.

That view is shared by Russia, which leads another big bloc of oil producers. OPEC and this Russia-led group, known as “OPEC-plus,” have acted in concert in recent months to stabilize oil markets after the pandemic closed swaths of the global economy, walloping demand.

The sanctioning of a modest production increase would represent a middle ground between a Saudi plan to extend curbs for three months and the group’s original plan to boost output of 2 million barrels a day in January.

Source: WSJ

The Market Should Worry About 2022, Not 2021

Amid a wave of optimism in financial markets, investors can relax about the expected profit rebound in 2021. They might worry more about 2022.

Even as Western nations struggle to contain another jump in Covid-19 infections, most S&P 500 sectors are now up year-to-date. Yet equities didn’t get much of a boost Wednesday when the U.K. approved for use the vaccine made by Pfizer and BioNTech . The power of good news about the pandemic seems to be subject to diminishing returns, raising the question: Is the profit rebound mostly priced in?

Wall Street is factoring in a 22% increase in S&P 500 earnings per share for next year. This seems reasonable, even cautious, following the expected 15% fall this year. This summer showed that consumption can return very quickly when restrictions are eased, and global trade and manufacturing already seem to be on a steady path to recovery. In 2010, after the global financial crash, profit growth was 40% as a result of a dismal 2009.

But forecasts for 2022, the first “normal” year after the crisis, say more about what the market is thinking. Those expectations look less grounded.

As of now, S&P 500 earnings per share are seen expanding another 17% in 2022. This is in line with what happened in 2011, when they rose 15%. Back then, however, profits were far less elevated because the downturn had lasted longer: Relative to their 2007 peak, they were up only 11% in 2011. Current expectations of 2022 earnings place them 21% above 2019 levels. Consumer-cyclical companies such as auto makers and hotels would be up 35% overall.

Source: WSJ

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