U.S. oil prices moved up to just below $75 per barrel on Friday, nearing an August high, as tensions in the Middle East continue to escalate. Iran’s oil facilities are among Israel’s possible targets as it considers a response to Tuesday’s missile barrage. With oil prices poised to move above a key technical hurdle, a range of oil stocks were on investors’ radar.
West Texas Intermediate (WTI) oil prices jumped around 8% since Monday. On Thursday, President Biden told members of the press at the White House that he was “discussing” whether the U.S. would support potential Israeli strikes on Iran’s oil infrastructure. Oil prices moved 4% higher on the comments.
On Friday, Biden told the press that “Israelis have not concluded what they’re going to do in terms of a strike” and that “if I were in their shoes, I’d be thinking about other alternatives than striking oil fields.”
Israel has been charting its response to what the Wall Street Journal called “one of the biggest ballistic-missile barrages in the history of warfare,” launched by Iran on Tuesday against Israel. Research from the Washington Post showed two dozen of those rockets evaded alliance defenses, finding targets on the ground in Israel.
Brent futures, the international benchmark, moved above $78 per barrel on Friday. Meanwhile, Bloomberg reported on Wednesday that some oil traders were hedging against supply disruptions in the Middle East with a number of $100-per-barrel crude calls traded this week.
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U.S. oil prices and Brent prices remain down around 8% and 5%, respectively, on the year.
West Texas Intermediate hit its high for this year just below $87 per barrel in April. An early summer rally sent it briefly to a high near $84 per barrel. WTI has since lagged, dropping below $66 in early September and as a result, oil stocks have also lagged. But they could now be looking to make a comeback.
The Oil Price Link
Oil prices have climbed as Iran and Israel have clearly crossed the line into direct engagement. Oil markets worry that Israel could choose to damage Iran’s oil production, transport or export facilities, aiming to sever the country’s most critical source of revenue.
Another fear is that the U.S. will sanction Iran and limit or reduce or end completely its oil exports. Either move would remove a substantial portion of global oil supply.
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Iran’s oil production has doubled over the past five years, from around 2 million barrels per day in 2019 to around 4 million bpd currently. Exports were near zero in 2019. Under relaxed Biden Administration rules, exports have increased to around 2 million bpd.
China is reportedly the only major buyer of Iranian oil, which is generally heavy crude, well-suited to producing diesel fuel. Consequently, loss of Iranian exports would send China out to bid against buyers for other sources of oil, pressuring prices higher.
The Biden administration’s quandary is that sanctioning Iran oil exports (or an Israeli strike) would mean driving oil prices higher just ahead of the November presidential election. Biden’s comments on Thursday may have been intended as a deterrent to Iran leadership, signaling the government not to intercede as Israel dismantles Iran’s proxy group Hezbollah in Lebanon.
An IDF official on Thursday afternoon told Tel Aviv-based newspaper Haaretz that Israel’s military would not allow Hezbollah “to return near the border.”
Oil Stocks That Could Take Off
Some oil stocks are tracking, along with oil prices, toward their strongest week since October 2022 as the conflict between Iran and Israel raised oil supply concerns.
Oil-specific names showing strength on the S&P 500 include Valero Energy (VLO), Diamondback Energy (FANG), Marathon Petroleum (MPC) and APA (APA). The stocks showed gains ranging from 6% to 10% on the week.
EOG Resources (EOG) and Matador Resources (MTDR) are also both poised to cut back above downward trendlines, which could offer aggressive investors early entries.
Meanwhile, Viper Energy (VNOM) is rebounding from support at its 10-week moving average.
Oil Prices: Exxon Mobil And Halliburton In Focus
Among the industry’s largest names, Chevron (CVX) was on pace to gain around 3.4% on the week while Exxon Mobil (XOM) was up 7.5% for the week during Friday’s market action.
ConocoPhillips (COP) and Occidental Petroleum (OXY) both jumped more than 8% this week as Friday. Both stocks are set to break downward trendlines.
In oilfield services, industry leaders SLB (SLB) and Halliburton (HAL) gained 7% and more than 8%, respectively, as of Friday..
Several have managed to put together actionable chart patterns. Exxon Mobil, the most obvious, has traded above a traditional 120.50 buy point in a six-week base pattern. Meanwhile, Chevron severed a downtrend as it jumped back above its 10-week line and is set to retake its 40-week and 200-day moving average.
SLB, formerly, Schlumberger, is climbing past resistance at its 10-week line. Halliburton’s chart is similar, but just testing resistance at its 10-week moving average. Buying into those trend line breaks means buying into the idea that oil prices may either hold steady or continue higher. There are various scenarios under which that is not likely.
Meanwhile, Fellow oilfield services firm Baker Hughes (BKR) has advanced 4% this week and is trading slightly above a traditional 37.14 buy point from a cup-with-handle base on a daily chart, according to MarketSurge charts. On a weekly chart, BKR is showing a 39.05 entry from a cup base.
Please follow Kit Norton on X @KitNorton for more coverage.
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