The SPDR S&P 500 ETF Trust (NYSE: SPY) opened lower by 0.6% on Friday after the U.S. said it killed Iran’s top commander, Gen. Qasem Soleimani, in a Baghdad airstrike.
News of geopolitical unrest in the Middle East sent stock prices tumbling nearly across the board on Friday morning. Every market sector traded lower, with the lone exception of the energy sector.
WTI crude oil prices spiked 3.5% on the potential for supply disruptions, and a handful of oil stocks traded higher on the news.
The Effects Of Middle Eastern Tensions On Oil
Iran is the fifth-largest global crude oil producer, according to the U.S. Energy Information Administration.
Tensions between the U.S. and Iran also involve other nations critical to global oil supply. Oil prices spiked back in September when Saudi Arabia blamed Iran for an attack on its oil facilities.
The U.S. attack that killed Soleimani occurred in Iraq, another top oil-producing nation.
The U.S., Saudi Arabia, Iraq and Iran together hold about 44% of the global crude oil market share, according to the EIA.
If even a portion of their production is meaningfully disrupted, it could easily shift the balance of the global oil market.
Tensions between the U.S. and Iran have been elevated since 2018, when Trump withdrew from the Iran nuclear deal and reimposed sanctions against Iran. Oil prices previously spiked back in June when Iran downed an unmanned U.S. drone and Trump said a war with Iran would result in “obliteration like you’ve never seen before.”
At the time, Iran’s supreme leader Ayatollah Ali Khamenei, Yahya Rahim Safavi, warned that “the first bullet fired in the Persian Gulf will push oil prices above $100.”
A spike in oil prices that dramatic would significantly raise costs for most companies. At the same time, oil services companies and oil-producing companies could see a huge boost to margins and profitability.
US Shale Impact
The good news for U.S. investors is that the nation is not nearly as vulnerable to Middle East oil production disruptions as it was just a decade or two ago.
“U.S. shale oil production has changed significantly in just the past four years. increasing to 9.2 million barrels per day at present from 5.2 at the end of 2016,” RSM Chief Economist Joe Brusuelas said Friday.
“One undeniable change in the U.S. economy over that span is that higher oil prices today tend to spur greater capital expenditures in the energy patch, thus bolstering domestic economic activity to offset the negative impact of rising gasoline prices.”
How To Play It
For investors looking for the hottest stocks to trade on the latest escalation, here are 10 energy stocks that spiked at least 20% following the Saudi attack back in September:
- Whiting Petroleum Corp (NYSE: WLL)
- Unit Corporation (NYSE: UNT)
- HighPoint Resources Corp (NYSE: HPR)
- SM Energy Co (NYSE: SM)
- Oasis Petroleum Inc. (NASDAQ: OAS)
- Denbury Resources Inc. (NYSE: DNR)
- QEP Resources Inc (NYSE: QEP)
- Valaris PLC (NYSE: VAL)
- Murphy Oil Corporation (NYSE: MUR)
- Patterson-UTI Energy, Inc. (NASDAQ: PTEN)
The death of Soleimani will not have any direct impact on the global oil market, but the volatility on Friday is due to concerns over how Iran will respond. For the next several days at least, the direction of oil prices and oil stocks will hinge on any public communications from Iranian and U.S. leadership.
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