U.S. oil prices are at five-month highs this week on rising concerns of open conflict between Israel and Iran after an airstrike killed top Iranian military officials in Syria on Monday.
Iran has vowed to respond to the airstrike, Reuters reported, which they claim targeted an Iranian consulate in Syria. The Associated Press also reported, citing Iran's state television, that Iran's Supreme National Security Council has decided on a "required" response to the strike.
Israel has neither confirmed nor denied it was behind the attack targeting Iran. However, the threat of escalation between the two countries and the possibility of tightening of U.S. sanctions on Iran has sent oil prices to prices not seen since October 2023, after Hamas first attacked Israel.
On Thursday, Bloomberg reported that GPS signals had been scrambled over Tel Aviv, as "Israel braced for a potential Iranian attack on the country's economic center."
U.S. crude futures traded above $85 per barrel on Thursday. Brent, meanwhile, hovered above $89 per barrel, pushed higher on prospects of higher demand and geopolitical tensions. As oil prices have increased in recent days so too have oil and gas stocks.
Yardeni Research in a brief Wednesday claimed its "number-one concern" since Hamas attacked Israel in October 2023 has been "that the war between these two mortal enemies could turn into a regional war with a direct confrontation between Israel and Iran that could disrupt the global supply of oil."
Brent crude prices, which have increased more than 19% since its recent low of $73.24 in December 2023, have reflected an increasing geopolitical risk premium this year, according to Yardeni Research.
Yardeni Research technical analysis of crude oil prices shows a possible breakout above a longer-term downtrend line. The firm believes a "channel formation" in the price chart suggests prices rising to $100 between July and September this year.
Energy Sector Picks Up Steam
Meanwhile, Sam Stovall, chief investment strategist at CFRA Research, on Wednesday lifted his view on the energy sector to overweight from marketweight.
Stovall wrote he believes the "strike by Israel against key leaders from Iran, in Syria, has a very real chance of bringing Iran into direct conflict with Israel and risks a wider spillover into oil traffic in the Gulf."
Stovall added that if Iranian barrels leave the global market it would greatly reduce spare capacity, even if members of the Organization of the Petroleum Exporting Countries (OPEC) picked up production.
"Unlike other geopolitical conflicts, this runs the risk of crimping oil supply," Stovall said of Iran and Israel.
On Again, Off Again Sanctions On Iran
Iran crude oil has been reentering the global market over the past couple of years. The U.S. and its partners have continued to grind through negotiations with Iran over uranium enrichment and economic sanctions. Iran's sour crude barrels are used primarily for diesel and jet fuel.
Iran produced about 3 million barrels per day of crude oil in 2023, with about 1.3 million barrels day exported to world markets, according to CFRA.
In 2015, six countries, including China and the U.S., plus the European Union, signed on to the Joint Comprehensive Plan of Action, commonly called the Iran nuclear deal. That deal freed Iran to export more oil in exchange for a number of concessions limiting its ability to develop nuclear weapons.
In 2018, President Donald Trump pulled out of the deal, reimposing oil export sanctions, while freeing Iran's nuclear program. The sanctions reduced Iran foreign crude oil sales to a low of around 400,000 barrels per day by 2020. The Biden administration began easing those restrictions, seeking a return to something like the 2015 deal.
Oil Prices, Iran And China And OPEC+
Oil prices have advanced steadily since early February as indications point toward possible supply disruptions and growing demand, globally and in China.
China's manufacturing activity expanded for the first time in six months in March, with the official purchasing managers' index (PMI) coming in at 50.8, up from 49.1 a month earlier, according to figures published Sunday. The number shows only modest expansion, but is a marked turn from the previous four months as concerns about China's economy weighed on oil prices.
The vast majority of Iranian crude goes to China, according to Kpler. In the first 10 months of 2023, 91% of Iranian crude went to China with 6% exported to Syria, 2% to Venezuela and 1% going to "other" countries, according to the firm Kpler.
Meanwhile, the Organization of the Petroleum Exporting Countries and its allies, including Russia, known as OPEC+, held a joint ministerial monitoring committee meeting Wednesday to assess market conditions, keeping oil output policy unchanged. OPEC+ is scheduled to meet in June to look at production policy changes.
Members of the oil cartel earlier this month agreed to extend voluntary output cuts of 2.2 million barrels per day to the end of the second quarter to support the market.
Energy Stocks And Oil Prices
With tensions between Iran and Israel keeping oil prices well above $80 per barrel, energy stocks are beginning to advance again after suffering at the end of 2023.
Warren Buffett-backed Occidental Petroleum added 0.2% to 67.42 during market action Thursday. On Wednesday, OXY gained 0.7% to 67.71, topping a saucer base with an official 67.67 buy point, according to MarketSurge.
The 17 stocks in the IBD-tracked Oil & Gas-International Exploration & Production industry group has gained more than 12% in 2024.
ConocoPhillips is in a buy zone, slightly extended above an official 127.35 entry. Meanwhile, Hess — as it waits for its consolidation with Chevron to be finalized — is currently around 4% above a 152.13 buy point from a cup-with-handle base.
Supermajor Chevron, another Warren Buffett stock, has formed a saucer base with a 171.70 buy point. Chevron stock is working on its third consecutive monthly advance but is currently around 8% below its buy point. CVX stock is arguably still in range from an early entry around 157 from some consolidation above the 200-day line.
Exxon Mobil is also in a saucer base and is trading 1% below an official 120.70 entry, according to MarketSurge. XOM has gained ground for three straight months, including an 11% advance in March.
Exxon and Chevron are part of the IBD-tracked Oil & Gas Integrated industry group. The 22 stocks that make up that group have collectively advanced 11.7% this year.
Please follow Kit Norton on X, formerly known as Twitter, @KitNorton for more coverage.
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