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 Oil and Gas - Exploration and Production - United States industry’s projected rise of 38.3%.

Rise in oil prices of course bodes well for oil majors. Exxon Mobil Corporation (NYSE:XOM) is specially positioned to benefit as this Zacks Rank #3 company has a stable cash position and balance sheet when compared to peers. Moreover, it’s a dividend aristocrat as it has rewarded stockholders with a 6.3% average annual dividend hike over the past 35 years. Shares of Exxon Mobil, in the meantime, have advanced 9.5% on a year-to-date basis, more than the Oil and Gas - Integrated - International industry’s rise of 5.1%.

Gold Edges Up on Safe-Haven Demand

As crude oil prices move north, prices of essential goods and commodities increase. And value of gold rises when inflation picks up. After all, it acts as a hedge against inflation. In fact, theoretically, more than 60% of the time, gold and crude oil have a direct relationship.

Given the bullishness, one should keep an eye on gold mining company AngloGold Ashanti Limited (NYSE:AU) and explorer and developer of gold mineral properties NovaGold Resources Inc. (NYSE:NG) . While AngloGold Ashanti currently has a Zacks Rank #1 (Strong Buy), NovaGold boasts a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

At the same time, these companies have given steady returns so far this year. While AngloGold Ashanti has surged 23.3%, NovaGold jumped 12.4%.

Not So Lucky Ones

Aviation stocks traditionally have an inverse relationship with oil price movement. So, it isn’t surprising that shares of aviation firms fall after a sharp rise in crude oil prices. After all, fuel costs form a major part of the operating costs of aviation firms. Thus, rise in oil prices will hit profit margins.

Refineries are also set to lose from higher price of crude oil, which is their raw material. Naturally, their net cash flow declines with the rise in crude oil prices. VanEck Vectors Oil Refiners ETF CRAK thus fell 0.3% on Jun 13.

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