Oil Stocks Rally on Middle East Conflict Impacting Oil Supply

Mentioned

Referenced Assets

State Street SPDR S&P 500 ETF Trust

ETF·SPY

N/A

CBOE Volatility Index

ETF·^VIX

N/A

Exxon Mobil Corporation

Stock·XOM

N/A

Occidental Petroleum Corporation

APA Corporation

CF Industries Holdings, Inc.

Stock·CF

N/A

Palantir Technologies Inc.

Stock·PLTR

N/A

ProShares - VIX Short-Term Futures ETF

ETF·VIXY

N/A

Oil stocks surged to the top of the S&P 500 (SPY) early Monday as the U.S.-Israel conflict against Iran entered its third day, disrupting Iran's oil export infrastructure and tanker traffic through the Strait of Hormuz.

CBOE Volatility Index

ETF

^VIX

▲0.00%

Wall Street seems to anticipate a comparable recovery this time. The S&P 500 fear gauge, the CBOE Volatility Index (VIX), rose to 21.59, crossing into a level indicative of nervousness but far from panic. For context, the VIX reached over 60 during the market turmoil triggered by the 2018 U.S. tariff announcements.

This conflict heightened concerns about oil supply, pushing U.S. crude futures up 6.4% to $71.30 a barrel, although prices have since retreated from their early highs.

Energy giants ExxonMobil (XOM), Occidental (OXY), and APA (APA) were among the best performers in the S&P 500. Fertilizer manufacturer CF Industries (CF) also saw a significant boost, ranking as the No. 2 S&P 500 stock behind Palantir (PLTR). This surge is linked to the fact that about one-third of global trade in urea and ammonia passes through the Strait of Hormuz.

CF Industries had warned of potential global supply shocks during its Q4 earnings call. According to the U.S. Energy Information Administration (EIA), 20 million barrels of oil per day, about 20% of global consumption, flow through the Strait of Hormuz. The EIA estimates that 2.6 million barrels per day from Saudi Arabia and the United Arab Emirates could be rerouted through pipelines to avoid this chokepoint.

A drone strike from Tehran caused a fire and temporarily shut down a major Saudi Aramco refinery, although the damage was reported as limited.

In June, S&P Global Market Intelligence noted that Iran might target critical Gulf infrastructure if its leadership felt an existential threat, which is currently the case. The rapid destruction of much of Iran's navy may have limited its ability to block the Strait of Hormuz, a move that could send oil prices soaring to around $120 a barrel, according to Lazard analysis.

The stock market had a "fire drill" in June during a similar escalation when the U.S. and Israel struck Iranian nuclear sites. The S&P 500 initially dropped 1.1% but quickly rebounded to reach record highs by the end of the month.

[1] Investor's Business Daily

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Oil Stocks Surge Amid U.S.-Iran Conflict Impacting The Strait of Hormuz

Referenced Assets

CBOE Volatility Index

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