The Santos Ltd (ASX: STO) share price has tumbled 3.6% in early-morning trade on Tuesday. At the time of writing the shares are changing hands at $7.37 a piece.
Despite the decline, the shares are still 19.84% higher for the year-to-date and 20.82% higher over the year.
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Santos share price surged off the back of Middle East conflict
The stock has jumped nearly 10% since the onset of conflict in the Middle East on the 28th of February.
The main driver of the increase is concerns about global oil supply. The ongoing conflict in the region is threatening the Strait of Hormuz which is a critical chokepoint in the region. Around 20-25% of global oil supply moves through the channel.
The conflict has caused shipping disruptions, production cuts, and has created fears about major supply shock. The price of oil spiked at US$116 per barrel yesterday, marking the highest level since 2022.
So, why is the stock tumbling today?
The price of oil has now cooled to around US$90 per barrel after US President Donald Trump signaled that the war with Iran may be nearing its end and that the US military operation is progressing well ahead of its initial timetable, Trading Economics explains.
Trump also said he plans to waive oil-related sanctions and have the US Navy escort tankers through the Strait of Hormuz in an effort to keep oil prices in check.
Rising oil prices have acted as a strong tailwind for Santos shares. Now they've come off the boil, the company's share price is following suit.
Even so, the oil price is still significantly higher than the US$55 to US$65 range seen over the past six months.
Is this a buying opportunity? Or a signal to sell?
While the sky-high oil price has cooled from its multi-year high, there is ongoing political instability in the region which could continue for the foreseeable future, and this will affect long-term supply. The past week has shown how volatile the oil price can be and some analysts are warning that the oil price could surge higher again.
According to TradingView data, analysts remain bullish on the Santos share price over the next 12 months. Out of 14 analysts, 11 have a buy or strong buy rating on the oil and gas producer's stock.
The average target price is $7.80 a piece, which implies a 5.58% upside at the time of writing. Although some think the shares could climb another 14.57% to $8.47 a piece.
