Oil gains likely to revert after Israel's Iran attack: Analyst
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Oil prices (CL=F, BZ=F) are jumping by the largest amount in three years following Israel's airstrikes targeting Iran's nuclear facility and military leadership. Iranian officials have labeled Israel's attacks as a "declaration of war."
Hedgeye Risk Management energy analyst Fernando Valle discusses with the Morning Brief's Brad Smith on what this escalating conflict means for his outlook on oil producers and the energy sector and the risk exposure for major American producers.
To watch more expert insights and analysis on the latest market action, check out more Morning Brief here.
Occidental Petroleum, Exxon, Chevron, all US energy plays, and and they're all the top trending tickers right now on the Yahoo Finance platform here. How should investors be really analyzing the US specific energy sector names?
Yeah, so with Exxon, uh, specifically, it's worth mentioning that they have a lot of production in the uh, in cutter gas. Uh, it's a very significant part of excellent earnings, uh, which is obviously in the midst of the, uh, uh, the conflict. Uh, cutter shares the North field with Iran, uh, and a lot of the exports go through the straight of Hormuz. So there's some risk there. Chronicle Philips, um, and Shell Total all have uh, participations in that field. Uh, when you look at Oxy or Chevron, they have less exposure to that area. Oxy is probably even the least out of all of them. Uh, you know, I mentioned all the pure US EMPs. I think they get more of that leverage. Um, and also because on the refining segment, where Exxon, Chevron, uh, BP, they're all exposed there, I think this is negative for the refining segment. Uh, and so the pure oil and P's tend to do better in this, uh, overshoot of oil.
Fernando, I wonder, from what you've been able to analyze in prior instances, how long is the tail in terms of the impact that we're talking about after the initial strikes and event that sparks the volatility to the point where we eventually see some falling action, but perhaps there's still a little bit of overhang until there's real resolution that seems like it might be emerging.
It's typically not long. Um, and uh, you've seen it with the attacks in Saudi Arabia a few years ago, um, and then with the the October 7th. This this lasts a little bit, you know, I have a friend who always says, oil always overshoots, and uh, typically wars and attacks are a good time for you to sell, uh, because you get that that opportunity to sell into, into strength. Uh, so we'll have to see here how how long the the attacks go on, uh, but typically it does not take long after, um, these initial skirmishes, uh, before, uh, it it reverses. Uh, I'll say you you talked about oil, some prognosis that we're going to $120 a barrel. Uh, as the your previous guest was saying, the issue is that the consumer can't really afford that uh, level of pricing. And so demand would come down significantly. So I I would put a very short, um, I I I don't think that's a very likely, uh, occurrence that we'll get to those levels unless there's a significant shift in the economy.
