What Happened?
A number of stocks jumped in the afternoon session after oil and gas prices surged amid reports the U.S. was planning an extended blockade of Iranian ports.
Brent crude, a key international oil benchmark, rose 5% to nearly $117 a barrel, its highest level since the conflict with Iran began. The price increase raised concerns that the situation, could persist for much longer, creating broad uncertainty in the energy markets. For oil and gas producers, higher commodity prices generally translate to increased revenues and profitability, which often makes their stock more attractive to investors. Adding to the volatility, the United Arab Emirates announced its departure from the OPEC oil cartel, introducing a new layer of uncertainty for global supply. This combination of geopolitical risk and rising commodity prices contributed to the broad market decline as investors grew more cautious.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.
Among others, the following stocks were impacted:
- Oilfield Services company Liberty Energy (NYSE: LBRT) jumped 3.5%. Is now the time to buy Liberty Energy? Access our full analysis report here, it’s free.
- U.S. Shale E&P company Crescent Energy (NYSE: CRGY) jumped 3.1%. Is now the time to buy Crescent Energy? Access our full analysis report here, it’s free.
Zooming In On Liberty Energy (LBRT)
Liberty Energy’s shares are extremely volatile and have had 36 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 12 days ago when the stock dropped 5.4% on the news that crude oil prices dropped amid easing geopolitical tensions in the Middle East.
Brent crude, the international benchmark, dropped by over 10% to below $90 a barrel, with U.S. West Texas Intermediate crude seeing a similar decline. The sharp sell-off was triggered by several developments, including a 10-day ceasefire between Israel and Lebanon and optimism surrounding potential U.S.-Iran negotiations.
Compounding the price pressure, Iran announced the reopening of the Strait of Hormuz, a critical chokepoint for global oil tankers. Easing tensions in the region reduce the 'risk premium' on oil prices, calming market fears about potential supply disruptions and leading to lower prices. The oilfield services sector acts as the industry's "first responder" to price volatility. When crude prices fall, exploration and production (E&P) companies typically respond by slashing capital expenditure. This immediate belt-tightening leads to canceled contracts for drilling rigs and completion crews, leaving service providers with expensive, idle equipment and a shrinking backlog of work almost overnight.
Liberty Energy is up 80.2% since the beginning of the year, and at $34.02 per share, has set a new 52-week high. Investors who bought $1,000 worth of Liberty Energy’s shares 5 years ago would now be looking at an investment worth $2,793.
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