Oil markets pushed spot prices sharply higher in response to the U.S.-Israeli conflict with Iran, but the equity market for large integrated oil companies has not kept pace. Traders appear to be pricing in a significant but likely transient squeeze on near-term supply rather than a sustained bull market for oil firms.
Since joint airstrikes by the United States and Israel on February 28, front-month crude futures have climbed by more than 40%, according to market measures cited in reporting. By contrast, the iShares Global Energy ETF, which tracks a broad basket of global energy companies, has risen by roughly 2% over the same stretch, suggesting that investors expect any windfall to be temporary or offset by production losses and other factors that could blunt profitability for majors.
Brent and U.S. West Texas Intermediate futures each rose about 30% at the start of the week as disruptions to traffic through the Strait of Hormuz and stoppages to Middle Eastern oil and natural gas exports tightened near-term physical availability. The front-month Brent contract was trading at a premium of about $36 per barrel to its six-month delivery counterpart, a spread that highlights acute short-term tightness in the crude market.
"The market is anticipating a swift end to the closure of the Strait of Hormuz and a subsequent collapse in oil prices back to normalized levels," said James West, head of energy and power research at Melius Research. "The rally in oil prices is primarily contained to near-term spot prices rather than longer-dated crude oil futures."
Market observers have drawn parallels with the 2008 episode when Brent and other crude benchmarks climbed toward all-time highs near $147 per barrel amid geopolitical tension and other macro factors. That surge was followed within months by a steep fall to below $40 per barrel as the global financial crisis and a shift in demand dynamics turned the market dramatically lower.
"Go back to 2008," said David Hewitt, senior consultant at Hewitt Energy Perspectives. "Oil stocks followed crude’s rally until about $100 then almost completely disconnected as it went to $147."
"The market was right then - $147 per barrel rapidly became $30," he added. "It’s a bit of the same now."
The disparity between the surge in spot crude and the muted response among major oil company shares is visible in recent price moves. From their February 27 close through the first trading sessions after the strikes, Shell shares were up as much as 4.9%, Chevron gained roughly 2.6% and Exxon Mobil rose about 0.9%. BP recorded a larger jump, gaining 7.8% over that span.
Investors have put a greater premium on U.S.-based shale producers, whose assets and infrastructure are seen as insulated from the regional risks affecting Middle Eastern supplies. That preference is reflected in stronger gains for independents, with Diamondback Energy, the largest pure-play producer in the Permian basin, seeing its shares rise by as much as 7% from the February 27 close.
Portfolio managers and energy specialists point to the shape of the futures curve as an indicator of market expectations. Deferred contracts trading below spot — a condition known as backwardation — suggest traders believe the supply disruption will ease, bringing longer-dated prices down toward more normalized levels.
Simon Lack, portfolio manager of the Catalyst Energy Infrastructure Fund, noted that deferred oil contracts are not as high as the spot price, signaling that investors do not expect the supply disruption to last. He added that U.S. shale producers may be benefiting because U.S. energy supply and infrastructure are viewed as safe and insulated from the immediate regional risk, prompting investors to place a higher valuation on those companies.
That view is echoed by other money managers watching relative performance across the energy complex. Simon Wong, a portfolio manager at Gabelli Funds, observed that names such as Diamondback, APA Corp and Occidental had lagged Exxon and Chevron earlier in the year but are now beginning to catch up as the market revalues exposure to domestic supply.
Equity responses to rapid moves in commodity prices can be uneven, especially when the price dislocation is concentrated in the spot market and when there are concerns that production outages or shipping disruptions may be resolved relatively quickly. In this episode, the combination of a sharp near-term rise in spot crude, a significant spot-to-futures premium, and modest gains for integrated majors underscores market caution about the durability of higher prices.
Summary: Spot crude has surged following conflict-related disruptions in the Middle East, but large oil producers’ shares have risen only modestly as investors appear to bet on a short-lived supply shock. U.S. shale names have outperformed, reflecting perceived insulation from regional risks.