Shares of oil giants have barely moved since the Iran war began. What is the reason?

Since the beginning of the escalation of the conflict in the Middle East on February 28, oil prices have jumped by almost 30%, increasing at moments by more than 60%. However, the stock prices of major oil companies have not moved much, Barron's noted. The five giants - Exxon Mobil, Chevron, TotalEnergies, BP and Shell - added an average of just 1.4% to their market capitalization over the conflict period, contrary to the popular belief that oil stocks always rise in line with the cost of oil. But the Iranian crisis has changed the way the stock market reacts to unprecedented events in the energy sector, writes Barron's.

The analysts surveyed by Barron's connect the current weak dynamics of oil companies' securities with several factors.

- The main one is that, even those companies not based in the Middle East are vulnerable to the risk of major disruptions in production. Exxon Mobil, for example, has a liquefied natural gas (LNG) partnership with QatarEnergy, Barron's writes, noting that the situation with the virtual blockage of shipping through the Strait of Hormuz, a narrow waterway that carries about 25 percent of the world's offshore oil supply and a significant volume of LNG, jeopardizes both the company's current sales and the development of its business.

BP produces oil in Iraq and has faced drone attacks on its fields; the company also had to evacuate employees. And Chevron was forced to halt gas production off the coast of Israel due to fighting - at the request of local authorities.

In general, according to TD Cowen analysts, the French TotalEnergies has the largest presence in the Middle East among Western oil giants as a percentage of its production - 27%. It is followed by BP (18%), Exxon (16%), Shell (13%) and Chevron (4%).

- Another reason oil stocks haven't changed much in momentum since the Iran crisis began is that they were already rising before the conflict escalated, Barron's notes. As with other dramatic events, investors often inflate prices before events even occur, said William Blair analyst Neil Dingmann: "I think people were buying on rumors and selling on facts," he suggested. Since the beginning of the year, Exxon Mobil securities have added 25%, BP 17%, Shell almost 16% and Chevron just over 24%.

- In addition, most investors are wary of buying stocks now because a sudden de-escalation of the conflict could cause prices to fall, Dingmann noted. "The thing is - rightly or wrongly - that people think it won't be too protracted [the conflict]," he said.

Dan Pickering, chief investment officer at Pickering Energy Partners, agrees: "It's hard to chase profits unless you have a strong belief that the Middle East conflict is going to drag on for six months or more, in which case everything is really cheap," he says. Past oil shocks have rarely lasted longer than a couple of months, Barron's notes.

- Investors are focused on the value of oil in the future, not the current spikes. Since long-term futures are almost unchanged, oil stocks are also standing still, Barron's notes. For example, futures contracts expiring at the end of 2027 are trading below $70. "The market is saying that in 12 to 18 months the situation could resolve and oil prices could go down," notes Hennessy Funds portfolio manager Ben Cook.

Pickering also points out that giant stocks are more dependent on the overall market than smaller companies. They have many different businesses - from petrochemicals to gasoline sales - that are tied to the consumer's wallet. And due to the impact of energy prices on inflation, purchasing power may fall, which will drag the companies' securities down.

Since the beginning of the war in Iran and until March 10, world oil prices have shown significant growth. If before the escalation of the conflict a barrel of Brent oil cost about $73, then at the peak the price soared by 37%, reaching $119.5 on March 9, and today, March 10, the cost of Brent has consolidated around $91 per barrel.

Exxon Mobil shares have slipped about 1.3% since the end of February - the time of the beginning of the Iranian crisis - dropping from $152.5 to $150.4 per unit. Chevron added only 1.7%, rising from $186.7 to $189.9. European giants also failed to show explosive growth: TotalEnergies rose just 1% from €67.3 to €68, while Shell added 1.4%, rising from $83.5 to $84.7. BP showed relatively better results in the group amid high volatility - its securities in the US strengthened by 4%, rising from $38.8 to $40.4.

This article was AI-translated and verified by a human editor