On Wednesday, the Organization of the Petroleum Exporting Countries (OPEC) decided to cut crude production, which will trigger a rise in oil prices, thus bolstering the strength of banks.
OPEC stated it would cut production by 1.2 million barrels a day from 33.6 million barrels, catalyzing an 8% rise in crude prices. The organization also stated that other countries were expected to follow suit’ those extra cuts could amount to 600,000 barrels a day.
Earlier this year, bank stocks took a hit as falling oil and gas prices left them concerned about energy companies’ capacity to repay their loans. Fifteen of the largest U.S. banks totaled a combined $6 billion in reserves for energy loans.
The ripple effect of the higher oil prices will likely result in banks releasing some of the reserves, thus boosting earnings. Jason Goldberg, an analyst at Barclays, told The Wall Street Journal, “You certainly feel a lot better than you did at the beginning of the year.”
Banks have been seeing a rosier picture lately; the Fed is raising interest rates; the economy seems to be rebounding and the impending Trump presidency offers hope for less stringent regulation. Bank shares have risen sharply; the KBW Nasdaq Bank Index jumped 2% on Wednesday to reach the highest level since the 2008 financial crisis; Bank of America Corp. rose more than 4% on Wednesday, while Wells Fargo rose 2%, J.P. Morgan Chase & Co. 1.6% and Citigroup Inc. 1.6%.