Energy stocks surge on oil deal hopes, sending market higher

Energy companies powered to big gains Wednesday, leading the broader stock market higher, on reports that OPEC nations were moving closer to an agreement to cut oil production.

Stocks switched between gains and losses for most of the day, and most industries did not move much. Energy companies surged at 2 p.m. Eastern time on reports that a deal was close. A two-year slump in oil prices has decimated profits at energy companies. The energy sector made its biggest gain since January.

After stock trading closed, OPEC said it had reached a preliminary deal to reduce production for the first time in eight years.

“It just creates a lot of optimism that the worst is over for investors,” said Brian Youngberg, energy analyst at Edward Jones.

The Dow Jones industrial average rose 110.94 points, or 0.6%, to 18,339.24. The Standard & Poor’s 500 index advanced 11.44 points, or 0.5%, to 2,171.37. The Nasdaq composite edged up 12.84 points, or 0.2%, to 5,138.55.

A little more than two years ago, a barrel of oil cost around $100. But a huge supply glut built up as the U.S. and other countries produced more and more oil and the global economy slowed, which hurt demand. Oil hit a low of $26 a barrel in February and has traded between $40 and $50 a barrel since April, but investors doubted the price would rise further without limits on production. OPEC produces more than a third of the world’s oil.

“The industry needs higher oil prices,” said Youngberg.

Benchmark U.S. crude jumped $2.38, or 5.3%, to $47.05 a barrel. Brent crude, the international standard, rose $2.72, or 5.9%, to $48.69 a barrel.

Exxon Mobil shares leaped 4.4% to $86.90 and Chevron climbed 3.2% to $102.15.

Mining and industrial companies also rose. The Dow was aided by a big gain for heavy machinery maker Caterpillar, which rose 4.5% to $86.59.

Phone companies suffered some of the largest declines. AT&T fell 1.5% to $40.85 after a UBS analyst downgraded the company to “Neutral” from “Buy.” Analyst John Hodulik said profits will get squeezed as the companies offer trade-in deals to try to win customers. He cut his profit forecast for Verizon, which fell 0.8% to $52.06.

AT&T has climbed 19% this year and Verizon has risen 13% as investors sought stocks that pay big dividends while bond yields remain low.

Nike reported profit and sales that were stronger than analysts expected, but the athletic apparel maker’s stock sank 3.8% to $53.25 as investors worried about challenges, including slower orders in North America. Credit Suisse analyst Christian Buss said orders in that market are growing at their slowest pace in five years as competition increases. Nike is down 15% this year, more than any other stock on the Dow Jones industrial average.

Stockholders in SABMiller approved its combination with AB InBev. That vote was one of the last hurdles in the giant beer merger. AB InBev stock rose 1.2% to $133.44. As part of the deal, Molson Coors will gain full ownership of its joint venture with SABMiller, MillerCoors. Its stock climbed 1.9% to $109.61.

Mattress maker Tempur Sealy International plunged 22.4% to $57.77 after the company said third-quarter sales aren’t meeting its expectations. It cut its guidance and said it expects revenue to fall as much as 3% this year. That suggests sales of no more than $3.12 billion, while FactSet says analysts expected $3.23 billion on average.

Deutsche Bank traded higher after the German bank said it would sell a life insurance subsidiary and emphasized it was not seeking government aid. The company is selling its Abby Life unit to Phoenix Life Holdings for about $1.2 billion. Investors have been worrying about Deutsche Bank’s ability to pay a $14-billion claim from the U.S. government. Its U.S.-listed stock, which is down by half this year, rose 3.2% to $12.30.

Wholesale gasoline jumped 8 cents, or 6%, to $1.48 a gallon. Heating oil rose 8 cents, or 5.8%, to $1.49 a gallon. Natural gas fell 4 cents to $2.95 per 1,000 cubic feet.

Bond prices slipped. The yield on the 10-year Treasury note rose to 1.57% from 1.56%. The dollar rose to 100.75 yen from 100.27 yen and the euro inched down to $1.1214 from $1.1221.

Gold fell $6.70 to $1,323.70 an ounce. Silver shed 4 cents to $19.12 an ounce. Copper rose 2 cents to $2.19 a pound.

The CAC-40 in France rose 0.8% and Germany’s DAX rose 0.7%. In Britain, the FTSE 100 gained 0.6%. Tokyo’s Nikkei 225 index fell 1.3% and Hong Kong’s Hang Seng was unchanged. Seoul’s Kospi climbed 0.9%.

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UPDATES:

2:45 p.m.: This article was updated with the close of markets, OPEC’s preliminary deal and additional information.

11:25 a.m.: This article was updated with more recent stock prices and additional information.

8:45 a.m.: This article was updated with more recent stock prices and additional information.

This article was originally published at 6:50 a.m.