Why Energy Stocks React Differently to Middle East Geopolitical Tensions

Rising oil and gas prices should, in theory, boost all energy stocks. However, the reality on the stock market paints a different picture, with only a select few companies truly benefiting. This article examines the real winners and losers in the current climate.

It might surprise some market observers, but not every company in the energy sector sees a positive response to recent price surges in crude oil and natural gas. While commodity markets behave as expected – with bottlenecks and scarcities leading to significant price increases – stock market reactions are far more nuanced.

Since the recent geopolitical confrontations in the Middle East, specialized hydrocarbon production companies have primarily benefited. Examples include Norwegian producers like Equinor, Vår Energi, and Aker BP. Significant gains are also seen among second-tier players such as Tullow Oil and Harbour Energy from the UK, and American shale oil producers like Kosmos Energy.

Large integrated energy conglomerates such as ExxonMobil, Chevron, Shell, BP, and TotalEnergies have also seen their stock prices rise. These companies not only possess extensive oil and gas exploration and production capacities but also significant refining infrastructures. The bottlenecks in gasoline, diesel, and jet fuel have particularly boosted this segment. The robust performance of predominantly refining-focused companies like Neste (Finland), Repsol (Spain), and PBF Energy (USA) reflects the expansion of processing margins, especially for jet fuel and diesel.

A unique situation has emerged for Verbio from Zörbig, Saxony-Anhalt, Germany. Here, the focus is less on their biodiesel production and more on the planned legislative support for injecting "green" methane gas into German gas supply networks. This promising development has led to a gain of approximately 60 percent for Verbio shareholders since the beginning of the year.

Conversely, energy service providers have reacted negatively to recent developments. This group includes companies such as SLB, Halliburton, DNOW, Técnicas Reunidas, and Chiyoda from Japan. The prevailing sentiment in the oil market suggests there is no fundamental scarcity of crude oil and natural gas. Instead, current supply chain issues are attributed to transport bottlenecks caused by the de facto impediment to shipping in the Strait of Hormuz. A glance at the crude oil futures curve reveals a market in backwardation, where short-term delivery contracts are significantly more expensive than longer-term ones. The price development of crude oil, natural gas, fertilizers, and other crucial products from the Middle East now largely depends on when the Strait of Hormuz can safely be reopened for international shipping.