When WTI crude prices rose by around 5% earlier this week, energy investors thought that a breakout began. On Tuesday, the rebound stalled. Prices fell again after China offered world markets no concrete details on its mega stimulus plans.
Oil prices depend primarily on fears about escalating tensions in Israel, Lebanon, and Iran. When markets speculate that the war will not have an impact on oil supply, prices fall. Investors should watch Conoco Phillips (COP), EOG (EOG), Diamondback Energy (FANG), and Exxon Mobil (XOM). Those are the energy giants that would break out first if energy prices rise.
Investors need to brace for oil prices falling again. While volatility will rise as Middle East tensions worsen, history might repeat itself. In the medium term, oil prices usually spike no higher than around $90/bbl. At that level, demand eases, supply rises, and prices fall.
Watch gold prices, which are at all-time highs. Strong gold prices indicate that investors are taking a geopolitical hedge on risks, and they increase the chances of oil prices rising as well.
For now, watch the war developments. Israel may retaliate after Iran’s missile attacks. The U.S. may intervene to prevent the conflict from spreading.
Two energy stocks that fell the most and have value include Marathon Petroleum (MRO) and Valero Energy (VLO).