Oil prices gained $3 overnight, but there is a lineup of stocks benefitting from the fear premium following the assassination of Qasem Soleimani, the head of the Iranian Revolutionary Guards Quds force in a U.S. drone strike in Baghdad.
Those same U.S. independent oil company stocks that have been dimming portfolios lately are enjoying anywhere from a 3% to 6% bump as of Friday morning.
Apache, Ring Energy, Matador Resources, Devon, EOG Resources, Pioneer Natural Resources, Hess … all of the U.S. independents have gained, while the supermajors are either lower or trading flat.
Even beleaguered Chesapeake Energy is riding a nearly 7% bump.
The Biggest Winners So Far
#1 Chesapeake (NYSE:CHK)
Prior to the assassination, this stock was a definite no-go because Chesapeake is largely a U.S. shale giant on the brink of collapse. Now, it’s the biggest beneficiary of potential world warfare.
#2 Ring Energy (NYSEAMERICAN: REI)
Until today, if you’d bought stock in this Midland, Texas-based oil and gas company three years ago, you’d be sitting on an 80%-plus loss. But thanks to the Baghdad drone strike, it’s up over 8%, so either you get in now--and get out quick--or you recoup some of your losses if you got it when you shouldn’t have.
#3 SM Energy (NYSE:SM)
With assets in the Eagle Ford and Permian, SM has gained 8% in the wake of the drone strike assassiantion of the Iranian Quds general. SM shareholders were already feeling a bit better by mid-December, when the stock gained 20% after years of horrible losses. In three years, SM had shed nearly 75%.
#4 Matador Resources (NYSE:MTDR)
Coming in third, so far, is Matador Resources, with a 5-6% surge on the geopolitical uncertainty.
After some tough years, Matador had seen a ~30% gain leading up to the drone strike in Baghdad. For 2019, it’s seen a total gain of 13%.
#5 Apache Corporation (NYSE:APA)
Apache, which was just starting to recover from its underwhelming reporting on its first drill offshore Suriname thanks to an unexpected deal announcement with French giant Total SA, is enjoying another 2-3% fear bump.
How Long Can The Fear Premium Run?
That depends on the rhetoric.
It’s been a busy week in Iraq, and the fear premium needs the news flow to remain momentous, or it will end quickly, just as it did in the aftermath of the strike on Saudi Aramco facilities this summer.
Earlier this week, Iranian-backed militia attacked a military base near Kirkuk in which four U.S. troops were wounded and one contractor killed, sparking an airstrike response from the U.S. on “Iranian proxy” targets in both Iraq and Syria. Then, pro-Iranian protesters attacked a U.S. embassy and withdrew after extensive damage.
The attacks were orchestrated by a pro-Iranian group called Kataib Hezbollah, which is seeking the withdrawal of U.S. troops from Iraq at a time when mass protests are focused on removing Iranian influence.
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The definitive airstrike took out Qasem Soleimani, the mastermind of Iran’s foreign military arm and the key influencer in the region, from Iraq to Syria.
Since the fear premium is based on sentiment, whether it will continue to boost oil prices and our beleaguered U.S. independent oil stocks depends on whether the market things a war is coming, or whether the market thinks that Iraqi oil will be threatened.
The market does not need to understand geopolitics, war or alliances. It just needs to feel fear.
Iran has vowed a response equal to the assassination of its Quds chief. It is not clear what that would be, and is likely that it is not yet clear to Iran, either.
So what the market will be responding to is rhetoric. And there will be a lot of it. Tehran will have to save face, and Trump is showboating as a distraction from impeachment and to gain lost ground ahead of 2020 elections.
But what will nag the market and dull the fear premium will be the recollection of how quickly things de-escalated in the aftermath of the attack on Saudi Aramco facilities, which was a direct threat to the world’s oil supply.
The premium lasted a day, despite the rhetoric.
The safe bet? Play the day, not the future.
By. Charles Kennedy for Oilprice.com
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