Oil Stocks Have More Room to Run as Tensions Heighten in the Middle East

Oil could turn into liquid gold again.

Crude futures (CL=F) jumped 9% last week – its biggest weekly gain since March 2023 – due to escalating tensions in the Middle East.

Israel’s desire to retaliate against the Iranian missile attack prompted more traders to bet on oil at $100, pushing bullish bets on Brent crude to a 5-week high.

I had the opportunity to speak with Rystad Energy Claudio Galimberti, who told me that traders are “clearly taking into account the risk of a big supply disruption” as tensions in the Middle East reach “one of the highest levels in four decades.”

Iran is a major player in the global oil market, producing more than three million barrels of oil per day, so the growing risk of supply disruptions could be a “big price tailwind” in the short term , according to Blue Line Futures. Bill Baruch.

“This will significantly increase crude oil prices. This is a game changer,” Baruch warned.

If you’re looking for ways to protect yourself against the risk of supply disruptions, Galimberti considers Exxon Mobil (XOM), Chevron (CVX), and Shell (SHEL) among the “obvious beneficiaries” due to their limited exposure to the Middle East .

Judging by last week’s stock movements, it appears Wall Street agrees. Exxon shares jumped 7.8% to an all-time high, while Chevron climbed 3.6%.

Wall Street has been trying to assess the risk of a possible broader conflict. One of the scenarios discussed is the potential blockage of the Strait of Hormuz, a key passage and hub of the global oil market, which accounts for almost 30% of global oil trade.

This is a potential threat that Wall Street pros will be watching closely in the days to come.

Jenny Grimberg of Goldman Sachs echoed the growing risk of significant disruption, writing in a note last week that “the most significant impacts of the conflict will likely come from a disruption in energy supplies, with a potential closure of the Strait of Hormuz likely to lead to a further significant rise in oil prices, which, in turn, could put further upward pressure on inflation and weigh on growth.

Goldman estimates Brent could peak at around $90 a barrel if OPEC works to quickly offset a disruption of 2 million barrels per day for six months. However, if OPEC does not take steps to cushion a deficit, the team predicts prices will peak in the mid-90s.

And pros warn that the consequences of further escalation in the Middle East could extend far beyond the energy market. Paul Christopher of the Wells Fargo Investment Institute says broader conflict will prompt investors to reposition toward “safe havens.”

“This will likely lead to an appreciation of the US dollar, Japanese yen and Swiss franc; rising commodity prices and 10-year US Treasury bonds; and falling stock markets,” Christopher wrote in a client note last week.

Sean Smith is an anchor at Yahoo Finance. Follow Smith on Twitter @SeanaNSmith. Any advice on deals, mergers, activist situations or anything else? Email [email protected].

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