Recent gains in U.S. oil producer stock values suggest threats to Middle East oil production and transport could provide ongoing upside support for U.S. oil producers as demand for U.S. oil could climb.
Share prices for some of the biggest U.S. producers have been on the rise since the start of 2020, following West Texas Intermediate crude oil prices higher in the wake of the Jan. 2 U.S. airstrike that killed Iranian Gen. Qassem Soleimani in Iraq then again following a retaliatory attack by Iran on a U.S. base in Iraq on Jan. 7.
WTI crude oil surged to a $65.65 per barrel high in overnight trade on Jan. 7 but fell to $59.61/bbl at the Jan. 8 close on the New York Mercantile Exchange, as President Donald Trump emphasized de-escalating tensions with Iran.
In line with the crude oil price movement, Occidental Petroleum Corp. was up 9% since the beginning of 2020, but in contrast, ConocoPhillips Co., which edged higher by the single digits after the attack, returned to essentially unchanged.
Before conciliatory messages were exchanged Jan. 8, the S&P Oil and Gas Exploration and Production index, which represents a larger basket of U.S. oil and gas production stocks, was up 3% for the year.
"Obviously risk premium prices are good for producers," Phil Flynn, an analyst with the PRICE Futures Group, said in a Jan. 8 telephone interview. In the build-up to tensions in the Middle East, U.S. producer stock prices were up. Since then, oil producer stock prices are getting "beat up," he said.
Producer stock values could see sustained improvement should demand for U.S. oil rise with a more significant conflict between Iran and the U.S. as attacks on oil facilities or any disruption to the Strait of Hormuz could heighten global demand for U.S. crude oil. Nearly 21 million barrels of oil per day flow through the Strait of Hormuz located between Oman and Iran.
Flynn said U.S. producers have already benefited from sanctions that prevent Iranian crude oil exports. "We already know the impact of lifting Iran sanctions," he said.
Should the latest moves by the U.S. and Iran lead to an end to the Iranian conflict, and U.S. sanctions are lifted, U.S. producers will face increased competition and stock prices could suffer, Flynn said.