Wall Street Snubs Big Oil Stocks amid Crude Price Runup

One of the Newtonian laws of Big Oil physics is getting flipped on its head.

Historically speaking, when oil prices rise, shares of oil majors tend to rise with them. But as oil prices spike amid the US-Israel conflict with Iran, shares of major oil firms have barely budged. Consider it a sign of the sheer disruptive scale of the Middle East war, and the unprecedented coordinated response it has sparked from the world’s energy leaders.

Conscious Uncoupling

Oil prices nosedived on Tuesday, following an explosive rise that pushed prices well above $100 per barrel earlier this week. US crude prices were down roughly 8% for the day through late Tuesday afternoon, falling to about $86 per barrel, while the global Brent crude benchmark fell a similar amount to about $91 per barrel. But prices remain up significantly, about 26%, since the start of the conflict. 

The usual correlated rise in oil major shares, however, remains to be seen. Shares of Chevron, for instance, have dipped slightly since the start of the war, and Exxon’s are down nearly 3%. While the unusual decoupling is largely due to fears of how the conflict could rock the oil industry’s operations in the Middle East, a couple of underlying factors are also at play:

• Unsurprisingly, each of the big five oil majors has a significant share of production in the region; according to TD Cowen estimates seen by Barron’s, a full 27% of TotalEnergies’ supply chain is exposed to the region, followed by 18% for BP, 16% for Exxon, 13% for Shell and 4% for Chevron.
• Some traders see a possible parallel to the 2008 spike and subsequent crash in oil prices if the war drags on and threatens supplies. “Oil stocks followed crude’s rally [in 2008] until about $100, then almost completely disconnected as it went to $147,” David Hewitt, senior consultant at Hewitt Energy Perspectives, told Reuters. “The market was right then — $147 per barrel rapidly became $30.”

In the meantime, leaders from the more than 30 member nations of the International Energy Agency convened Tuesday to consider tapping the roughly 1.2 billion barrels of oil they collectively hold in reserve, a move that could further stabilize oil prices. Officials proposed the largest reserve release in the organization’s history, topping even the 182 million barrels released in 2022 after Russia’s invasion of Ukraine, and members may decide as soon as today, The Wall Street Journal reported.

Identity Crisis: As the conflict goes on, more than one oil major is undergoing a makeover. Shell on Monday announced it would sell its Jiffy Lube subsidiary to Monomoy Capital Partners for $1.3 billion. And in an SEC filing Tuesday, Exxon revealed it plans to ask shareholders to vote on moving its corporate charter from New Jersey to Texas, a maneuver that could provide it with cover from activist investors. What is it about chaos that always seems to prompt big moves?