Shares of major oil and gas companies ExxonMobil, Chevron, and ConocoPhillips experienced a significant rally on Thursday, increasing by 3.8%, 3.4%, and 4.2% respectively by 2 p.m. ET. The rise in these shares was attributed to increased oil prices, which climbed by 3.4% to $64.60 per barrel.
Despite previously declining due to the threat of tariffs impacting the global economy, oil prices surged following the announcement of new sanctions by the Trump administration against Iran. As Iran is a key oil and gas producer, these sanctions could restrict its exports, potentially raising global prices.
The U.S. Department of the Treasury released a statement imposing new sanctions to hinder Iran’s ability to export oil, which funds its government and military activities. Among those affected were Shandong Shengxing Chemical Co., a Chinese refinery, and several vessels involved in transporting Iranian oil to this facility. The sanctions underscored efforts to limit Iran’s oil export capabilities.
Iran ranks as the fourth-largest producer within OPEC+ and holds the position of the third-largest natural gas producer globally. Any constraints on Iran’s exports could tighten global supply, possibly increasing prices and allowing U.S.-based integrated companies to fill the void left by Iran’s reduced output.
Additionally, reports surfaced that OPEC+ intends to collaborate with Iraq and Kazakhstan to curb their oil production, as these nations had been exceeding their set quotas. A weaker U.S. dollar since April 2 might also be influencing the rise in oil prices since oil is priced in dollars, the global reserve currency.
The combination of these factors likely contributed to the increase in oil prices and, consequently, the stock prices of these companies, as individual company news was minimal for ExxonMobil, Chevron, and ConocoPhillips.
However, the short- to medium-term outlook for oil prices remains uncertain. The potential for a U.S. recession, spurred by President Donald Trump’s tariff policies, could negatively impact oil demand. Chinese demand may also stay subdued due to ongoing recessionary conditions and the trade tensions between the U.S. and China, which could further hinder China’s economic growth.
Given that the U.S. and China are major global oil consumers, a simultaneous decline in demand from both countries could adversely affect oil and gas prices. While oil and gas stocks may offer portfolio diversification and dividends, significant stock price increases are not expected in the near future unless a geopolitical conflict with a major oil producer occurs, similar to the situation in 2022 following Russia’s invasion of Ukraine.
As negotiations and sanctions aim to prevent conflicts, and with the potential for negotiations to resolve Russia’s ongoing war in Ukraine, substantial short-term gains in oil and gas stocks appear unlikely. Investors are advised to consider these stocks more as a hedge against war and supply shocks rather than expecting notable upside potential, at least for the foreseeable future in 2025.
The article’s disclosure notes that Billy Duberstein or his clients hold positions in ConocoPhillips, while The Motley Fool has stakes in and recommends Chevron.
