Shares of U.S. energy producers surged after weekend attacks on Saudi oil production facilities knocked out 6% of global oil output, giving a boost to stocks that have beaten down by low commodity prices and investors wary of glutted commodity markets. Energy shares in the S&P 500 rose 3.8%, the lone sector in the stock index not lower on the day. The broader index slumped 0.3%.
Those in the S&P 600 index of smaller companies climbed even higher, up 11%. Standout gainers included North Dakota drillers
, up 55%, and
which added 29%.
Centennial Resource Development
which operates in West Texas, rose 37%, and
The strikes on Saudi Arabia’s oil infrastructure have led to a production shutdown on a scale the world hasn’t seen for decades. It could have long-lasting consequences for global markets and politics. Photo: Planet Labs Inc via AP
All told, more than two dozen U.S. exploration and production companies rose by more than 10% on Monday. U.S. crude futures, meanwhile, climbed 13.4% to $62.21 a barrel amid disruptions to Saudi production. Besides being able to sell oil for significantly more this week than last, investors are also betting that producers will be able to capitalize on the higher prices in the futures market to lock in higher prices for their future output. Analysts with investment bank Tudor, Pickering, Holt & Co. said those with “precarious balance sheet positions”—like Whiting,
—stand to benefit the most. Analysts at the Houston-based bank said large producers that they track have about 8% of their 2020 production hedged at about $60 a barrel, while the smaller companies they study have roughly 26% of next year’s output locked in at $59.50 a barrel.
SunTrust Robinson Humphrey analysts wrote in a note to clients that the rise in oil prices to about $60 a barrel should offer widespread benefit to producers since many of them break even at $50 to $55 a barrel “with higher prices driving pure profits.” Analysts with SunTrust singled out Centennial as a producer that could particularly benefit from a bump in oil prices from geopolitical tensions. About 60% of what Centennial produces from its Permian Basin drilling fields in West Texas is oil, and the company had none of its output hedged, the bank’s analysts said. “Given what we view as a re-introduction of geopolitical risk into the crude price environment, we believe the company is one of the best positioned to benefit,” they wrote in a note to clients in which they raised their price target for Centennial to $8, from $5. Write to Ryan Dezember at firstname.lastname@example.org
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