October's surging oil price has been a boon for S&P/ASX 200 Index (ASX: XJO) energy stocks.
On 1 October, Brent crude oil was trading for US$71.77. Today, that same barrel is fetching US$80.89.
As you'd expect, the 12.7% leap in the oil price has seen ASX 200 energy stocks outperforming this month.
The ASX 200, for example, is down 0.6% since the closing bell on 30 September, while the S&P/ASX 200 Energy Index (ASX: XEJ) has gained 5.3% over the same time.
Here's how these top ASX 200 oil and gas stocks have performed so far this month:
- Woodside Energy Group Ltd (ASX: WDS) shares have gained 7.3%
- Santos Ltd (ASX: STO) shares have gained 5.1%
- Beach Energy Ltd (ASX: BPT) shares have gained 5.9%
- Karoon Energy Ltd (ASX: KAR) shares have gained 5.1%
Unfortunately, the surging oil price driving Woodside and these ASX 200 energy stocks higher isn't being driven by booming global economic growth and soaring energy demand.
Rather, traders have been bidding up oil futures this past week over fears that the Middle East conflict could continue to escalate and possibly draw Iran into a full-scale war with Israel.
Highlighting why that could pose a major issue for the world's energy supplies, Firetrail said in an email on Friday, "20% of global oil supply travels through the Strait of Hormuz… If Iran wants to block passage of oil tankers, they can."
According to the investment management company, "To put it in context, historically, if you lost 1% of global supply, prices move +2-5%. A 20% loss of supply would see the price spike very high."
Will the oil price spike 'very high' amid the Middle East conflict?
A closure of the Strait of Hormuz or direct attacks on Iran's oil facilities would likely see the oil price surge, along with ASX 200 energy stocks like Woodside and Santos.
But the analysts at ANZ Group Holdings Ltd (ASX: ANZ) don't expect we will see this unfold.
According to ANZ (courtesy of The Australian Financial Review):
We see a direct attack on Iran's oil facilities as the least likely response among Israel's options. Such a move would upset its international partners, while a disruption to Iran's oil revenue would likely leave it with little to lose, potentially provoking a more ferocious response.
ANZ added that OPEC is planning to roll back its voluntary output cuts commencing in December, which should cool the rally in oil prices. The ASX 200 bank estimated that the cartel has seven million barrels a day in spare capacity, and it could return to production if needed.
JP Morgan also doesn't believe it's likely that Israel will launch direct attacks on Iran's energy infrastructure. If traders gain more conviction on this front, the October oil price rally may be close to an end.
According to JP Morgan (quoted by the AFR):
Our oil strategists think that attacking Iran's energy facilities is a low-probability scenario for Israel, and similarly, Iran targeting Gulf Arab states' energy flows is unlikely given improved diplomatic ties.
The main players in the Middle East have strong incentives to keep the conflict contained, given the economic transformation currently planned and implemented in the Gulf region requires a sustained absence of conflict.
Second, we view the closure of the Strait of Hormuz as a low-risk event, as Iran would be economically and politically undermining itself by irritating its main customer.
Regardless of the conflict's impact on the oil price, ASX 200 energy stocks, or the broader market, let's hope that calmer heads prevail and peace breaks out.
