Santos Ltd (ASX: STO) shares are trending higher in Wednesday morning trade.
At the time of writing, the shares are up around 2% and are changing hands at a six-year high of $8.54 each.
The latest increase means the oil and gas company's shares have increased around 39% for the year-to-date, and they're also up 12% compared to this time last year.
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What is driving the shares higher this year?
The ASX energy shares shot higher in 2026 off the back of ongoing conflict between the US and Iran. Volatility in the region has fuelled significant concerns about tighter global oil supply and rising prices.
The shares spiked in February and March, around the time news first broke that conflict had escalated between the two nations. The shares continued climbing in value as the war heated up.
Santos shares cooled in June off the back of news that the two nations could soon reach a peace agreement, but strikes have resumed in the region this week, reigniting inflation fears and pushing the energy company's shares to a fresh high.
The shares have also been supported by the company's strong half-year FY26 results announcement, which it posted last month.
Santos reported a 2% year-on-year increase in sales revenue and a 1.7% increase in production volumes. The company also generated free cash flow from operations, driven by strong base business performance.
The business could continue strengthening this year
It looks like the oil and gas business is well placed to keep increasing its production in the coming reporting periods, which could help boost its earnings even further.
Just this week, Santos announced that it has agreed to spend around US$189 million ($262 million) to buy another 3.3% of the Papua LNG project from TotalEnergies SE (NYSE: TTE).
The deal is still subject to regulatory approvals and a final investment decision. This is currently targeted for the fourth quarter of 2026.
If it goes ahead, Santos expects its share of LNG production from Papua LNG to rise by around 19% to about 1.2 million tonnes per year.
So, what do brokers tip for Santos shares next?
It looks like the experts are bullish about the outlook for Santos shares over the next 12 months.
Market Index data shows that all brokers have a strong buy rating on the stock. But after the latest rally, the $8.57 average target price now implies around a 0.5% upside, at the time of writing.
Sentiment is also very positive on TradingView. Out of 15 analysts, 13 have a buy/strong buy rating on Santos shares. Meanwhile, one analyst rates it a hold, and one rates the energy share a sell.
The average $8.75 target price implies a potential 2% upside ahead, at the time of writing. But some expect the shares to jump around 24% to $10.60 within the next 12 months.
Citi reaffirmed its buy rating on the ASX 200 energy share following its half-year update. The broker also raised its target price to $9, which is a little above the average.
Elsewhere, Morgans has a hold rating on Santos shares. The broker noted that the results beat estimates, but that it is impossible to quantify the risks posed by the Federal Government's gas reservation policy ahead of its release.
