Investors are likely to feel unnerved by the US-led missile strike against the Assad regime in Damascus for using chemical weapons against his own people and weakness in US equities on poor bank results over the weekend.
However, there’s one sector that is likely to perform well in this climate of apprehension.
It’s stocks that are exposed to the oil market that are likely to benefit as the price of crude is likely to head higher over the short-term at least as it normally does whenever Middle East tensions rise.
The latest battle that pitches Syria, Russia and Iran against the West has prompted JP Morgan to predict that the crude price will hit US$80 a barrel as the West Texas Intermediate (WTI) benchmark jumped to over US$67 a barrel.
Mining giant BHP Billiton Limited (ASX: BHP) will also join the party given its sizable petroleum division, while engineering groups catering to the sector, such as Worleyparsons Limited (ASX: WOR), could benefit if the oil price stays higher for longer.
And the oil price might just do that even if the missile strike is a one-off event!
It’s not Syria that will trigger a rethink of the oil price. It’s its friends.
The latest development has given US President Donald Trump an additional reason to slap fresh sanctions against Iran, whom he also holds responsible for the chemical attack.
Let’s not forget Russia. Its aluminium industry is already being crippled by sanctions and that has sent the price of the metal surging higher. If its oil industry is cut off from Western markets, the same will happen to the oil price.
Both Russia and Iran are major oil exporting countries.
What’s more, Trump has another political reason to target the two oil producers. If he wants to shore up his support base, what better way then to drive up the oil price to the benefit of states in the US that produce oil?
BHP could come out the biggest winner from the conflict as it could get a bigger premium for its US shale assets that it is trying to sell.
Consumers may pay at the pump but if his spin doctors do their jobs, the blame will be laid squarely at the feet of Syria and its allies. People only need one bogeyman to blame for their troubles.
However, higher oil prices will be a drag on the Australian economy and the rest of the S&P/ASX 200 (Index:^AXJO) (ASX:XJO), particularly if the Australian dollar weakens on the widening interest rate gap between our country and the US.
The higher oil price comes at a time when households are already struggling with rising power prices. Any further drain on household budgets will spell bad news for retailers, while transport stocks will also be among the first to feel the impact of rising prices at the bowser.
There is another forecast that is likely to have a big impact on markets over the near to medium term. Follow the free link below to find out how this could impact on your share portfolio.
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Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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