Santos Ltd (ASX: STO) shares have dipped into the red in Wednesday afternoon trade.
The oil and gas producer's shares are down around 0.2% and changing hands at $7.70 at the time of writing.
But today's small dip has barely dented gains made over the past week.
Santos shares tumbled 9% through June and into the first week of July. But have now rebounded around 8% over the past week and are back to levels seen during a rally in mid-March when escalating conflict in the Middle East raised concerns about global oil supply.
The shares are now up around 25% year to date, but are still roughly 1% below the trading levels seen this time last year.
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Why are Santos shares in the spotlight this week?
The oil and gas major's shares are the talk of the town after the US-Iran ceasefire broke down last week, and war escalated again between the two nations.
Santos shares gradually cooled through June and into July, off the back of expectations that the conflict was winding down. When the original peace deal broke in June, Santos fell 8% in a single session.
But a stark reversal over the past week has reinvigorated the war risk tailwinds that saw the company's shares fly higher earlier this year.
Escalating conflict has quickly caused a spike in oil prices, which in turn acts as a strong tailwind for Santos shares.
Trading Economics data shows that the price of WTI crude oil has now spiked over US$80 per barrel.
"Oil prices have rallied this week as renewed tensions between Washington and Tehran heightened supply concerns, adding fresh uncertainty after Persian Gulf producers increased exports following the signing of the interim peace agreement," Trading Economics said.
The good news for Santos is that the business can continue to perform well regardless of whether geopolitical uncertainty is high or low.
A few company-specific price drivers, including a rise in production and improved cash flow, have also helped Santos shares climb higher.
In late April, Santos posted its March quarter update, where it revealed a 1% increase in production and a 3% rise in sales revenue versus the prior quarter.
Its free cash flow from operations of US$383 million was in line with Q4 2025, and management reaffirmed its full-year 2026 production and cost guidance.
The company also recently confirmed it has now hit continuous production at its Pikka oil project in Alaska. The project is now producing about 20,000 barrels of oil per day, which will ramp up to 80,000 during the third quarter of 2026.
Are Santos shares a buy, sell, or hold now?
The experts are very bullish about the outlook for Santos this year.
Market Index data shows that all brokers agree on a buy rating on Santos shares. The average $8.70 target price implies a potential 13% upside at the time of writing.
Macquarie is one broker that has an optimistic outlook on Santos. It said that the company has had solid sequential growth in its second-quarter production and that it currently sees the producer tracking to the lower end of its CY26 guidance range. The team has a buy rating and a $9 target price on the shares.
