Oil Prices Soar On Gulf Tanker Attacks: Winners & Losers

Oil prices rallied, thanks to attacks on two oil tankers near the Strait of Hormuz, raising concerns about a supply disruption. Oil security in the region is now a pressing concern. About a month ago, two tankers from Saudi Arabia, one vessel from Norway, and one from United Arab Emirates were damaged by sabotage attacks between the Persian Gulf and Gulf of Oman.

With oil supplies along the world’s most important checkpoints coming under threat, the West Texas Intermediate (WTI) crude went up $1.14, or 2.2%, to $52.28 a barrel on Jun 13 after hitting an intraday high of $53.45. This is in sharp contrast to a 4% drop to $51.14 on Jun 12, the lowest since Jan 14, per Dow Jones Market Data.

And when it comes to the Brent crude, the global oil benchmark jumped $1.34, or 2.2%, to $61.3 after touching a session high of $62.64 a barrel. Similarly, the Brent crude fell 3.7% to $59.97 a barrel in the previous trading session, its lowest since Jan 28.

Thus, oil prices surged but not to a great extent. Prices are still near a five-month low, and it’s predominantly because of a drop in demand caused by trade tensions, especially between the United States and China, and slowdown in global economic growth.

Tom Kloza, global head of energy analysis at the Oil Price Information Services, recently said that the uptick in oil prices as the tankers were attacked “is not particularly impressive. In other years, this would be a 5% to 10% move.” U.S. oil prices continue to be in a tailspin, collapsing nearly 20% since touching $66.30 a barrel in late April. Same is the case for the global benchmark, Brent crude.

Don’t Undermine the Middle-East Situation

But, the scenario in the Middle East is tense. Such attacks in the Gulf of Oman mostly stem from the heightened tensions between the United States and Iran, which show no signs of ebbing.

And how can we forget that almost 22.5 million barrels of oil pass through the Strait of Hormuz each day since the beginning of 2018, which is roughly 24% of the world’s daily oil production. So, any disruption can lead to supply-demand disparity, eventually leading to elevated oil prices. Maybe that’s the reason why some analysts are adding $7 to the price per barrel. Patrick DeHaan, head of petroleum analysis at GasBuddy, summed up by saying that the latest attack in the Gulf “definitely opens a new chapter and new worry going forward for at least the next several weeks.”

How to Play Oil’s Recovery?

Corporations that are into hydraulic fracturing for oil were affected the most at the end of last year due to a drop in oil prices. This is because when oil is cheap, the cost structure of such corporations loses appeal and the incentive to pump dies. But now, with oil prices bouncing back, fracking stocks including PDC Energy Inc (NASDAQ:PDCE) are sure to make a comeback. The Zacks Rank #3 (Hold) company’s expected earnings growth rate for the next quarter is 72.9%, more than the Original post

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Written By: Zacks Investment Research