Oil prices spiked on Friday after the U.S. killed Iran’s top military commander, Qasem Soleimani.
Four experts discuss the impact on energy stocks.
John Kilduff, founding partner of Again Capital, says the geopolitical dynamics have been disrupted.
“I think up 4%, up $2 a barrel, really isn’t pricing in really what this sort of represents, at least to me. This is a huge development. This gentleman was sort of the minister of plausible deniability. When you hear about attacks on … Saudi Arabia or some of the other instances that we’ve had and they can never quite trace where it leads to, he was the guy. He was the guy that got the direction or the sort of generalized orders from the Ayatollah to go out and do this sort of stuff. And so taking him out was a big deal, and the stakes here are quite high. Iran’s going to have to do something, or they’ll completely lose face, so that’s why the oil market is on tenterhooks.”
Brian Levitt, global market strategist at Invesco, says stocks should shake it off over the long term.
“The big macro narrative is it’s still a slow growth world, inflation is benign, policies are accommodative, equities are cheap to bonds. None of that changes. Now, these types of events in a dangerous world happen. We saw it last year with the Saudi oil fields, and yet it was a year that markets were up 30%. I think what most investors would be surprised to know is that when geopolitical uncertainty spikes and when you get to these near-record highs and geopolitical uncertainty markets are actually positive 12 months.”
Alec Young, managing director of global markets research at FTSE Russell, says there are select names in the energy space that could move higher here.
“Everyone hates energy. It’s universally underweight, millennials are divesting, everyone knows the bearish narrative, and I think this is a reminder that you can never get too complacent in your market positioning. So I think there will be geopolitical premium that goes into the oil price. I think that puts a bid under a lot of the big oil companies, great dividend yields there, everyone’s looking for income, so I think people are going to maybe take a slightly more positive, constructive view on energy, which is good.”
Helima Croft, head of commodity strategy at RBC Capital, says this is a space to watch closely.
“We were up above $100 five years ago when you had ISIS on a tear in Iraq. Now with U.S. production, that’s really blunted the impact in the market of geopolitics, but I do think we really do need to pay close attention to what the Iranian response will be. I mean, Qasem Soleimani was considered the most dangerous operative in the Middle East, not just in Iran, and so the question is how does the Iranian leadership respond? There have been attacks on tankers since May, sea ships, and in September, it took half of Saudi oil production offline temporarily. So they’ve demonstrated a capacity to be very disruptive. I think we do need to pay attention to what comes next.”
