Key Takeaways:
West Texas Intermediate crude holding above $90 a barrel has ignited investor interest in energy producers, pushing shares of ExxonMobil and ConocoPhillips higher and sparking debate over which giant is better positioned.
"We have not seen the impact in the last two months of the Middle East war in terms of energy price transmission. It’s coming. And it’s coming big," Uday Kotak, founder of Kotak Mahindra Bank, said at the recent CII Annual Business Summit.
The surge in energy equities comes even as crude benchmarks have eased from recent peaks. Brent crude, which briefly touched $119 per barrel, now trades near $96, while WTI sits near $91. The gains for producers reflect oil sold from inventories purchased months ago when prices were higher.
The divergence highlights a critical lag for the energy sector. While sustained prices above $90 could significantly boost profitability, the prospect of a US-Iran deal that could reopen the Strait of Hormuz introduces downside risk to the oil price outlook.
The primary distinction for investors lies in the companies' business models. ExxonMobil operates as an integrated major, with operations spanning exploration and production to refining and chemicals. This model provides a natural hedge, as downstream refining operations can benefit from lower crude input costs, offering a buffer during periods of falling oil prices.
In contrast, ConocoPhillips operates as one of the world's largest pure-play exploration and production (E&P) companies. This structure offers investors more direct exposure to the price of oil. While this leads to greater upside in a rising price environment, it also carries more risk if crude prices fall.
The dynamic is visible in global markets. In India, for example, state-run oil firms have incurred losses of an estimated Rs 1 lakh crore by shielding consumers from the full impact of crude prices that hovered near $100, as reported by Firstpost. This demonstrates the high costs absorbed during volatile periods, a pressure that pure-play producers feel most acutely.
The sustained high price of oil forces a difficult choice for the global economy between managing inflation and ensuring energy company stability. Investors will closely watch for any official progress on a US-Iran ceasefire, which remains the single largest factor for a potential near-term drop in crude prices.
This article is for informational purposes only and does not constitute investment advice.
