KEY POINTS
- U.S. energy stocks gained as oil prices surged 3 percent amid escalating Middle East tensions.
- Brent and WTI crude prices rose above $75 per barrel following Israeli and Iranian exchanges.
- OPEC+ ministers met to discuss output but made no changes to production policies.
Shares of U.S. energy companies climbed on Wednesday as crude oil prices surged 3 percent, driven by escalating tensions in the Middle East. Investors reacted to Israeli and U.S. vows to respond to a missile attack from Iran, raising fears of supply disruptions and impacting the broader energy market.
Oil price surge fuels market response
Brent crude futures rose by $2.26 to $75.82 per barrel, while U.S. West Texas Intermediate (WTI) crude jumped $2.38, reaching over $75 per barrel. These price increases came after Israeli Prime Minister Benjamin Netanyahu vowed that Iran would “pay for its missile attack,” prompting fears of an extended conflict. Iran, in turn, warned of “vast destruction” if retaliation occurred, heightening concerns about the potential for broader unrest in the region.
The S&P 500 energy sector gained 1.4 percent, reaching its highest level in over a month, while broader market indices slipped. Energy majors, including Exxon Mobil and Chevron, rose by 1.7 percent and 1.5 percent, respectively. Meanwhile, ConocoPhillips, EOG Resources, and Devon Energy saw increases between 1.1 percent and 1.8 percent.
Oilfield services companies also experienced gains, with SLB rising by 1.6 percent and Halliburton by 1.3 percent. As market uncertainty increased, investors turned to energy stocks as a hedge against the potential worsening of the crisis.
Market volatility expected amid uncertainty
Panmure Gordon analyst Ashley Kelty noted, “We anticipate increased levels of volatility until a clearer picture of what may (or may not) happen appears.” OPEC+ ministers held a meeting on Wednesday to assess market conditions. No changes to production policy were expected, with the group on track to gradually unwind quotas starting in December.
According to Reuters, UBS analysts mentioned in a note that investments in oil could serve as a protective measure for portfolios amid escalating tensions, while market fundamentals remained positive.
However, some analysts, including Callum Macpherson from Investec, downplayed the immediate impact of these geopolitical events, suggesting that there may not necessarily be any disruption to global oil supply. “Current events do not necessarily change the narrative for the oil market,” he added.
Opec+ monitors compliance and production outlook
The recent rise in energy prices also drew attention to OPEC+ policies. The group, consisting of OPEC members and allies led by Russia, has been monitoring compliance with output cuts agreed to in late 2022. These cuts, totaling 5.86 million barrels per day, represent around 5.7 percent of global oil demand.
The group’s gradual unwinding of production cuts is scheduled to begin in December, with a planned increase of 180,000 barrels per day.
Compliance among member countries like Iraq and Kazakhstan remains crucial, and a lack of compliance could prompt Saudi Arabia and other key producers to make adjustments more rapidly. The next OPEC+ meeting, set for December 1, will be pivotal in determining the direction of oil production policy.
