Iran war boosts oil price, but oil major shares are stuck on the sidelines

Iran War Fuels Oil Price Surge, But Energy Giants Lag Behind in Stock Gains

Oil Market Reactions and Energy Stock Performance Amid Conflict

By Stephanie Kelly and Sheila Dang

Oil Prices Surge Following U.S.-Israeli War on Iran

LONDON/HOUSTON, March 9 (Reuters) - Oil prices on Monday climbed to the highest level since 2022, but shares of major producers like Shell and Exxon Mobil have so far seen limited gains since the U.S.-Israeli war on Iran broke out late last month, suggesting that traders think the pain in the market may be short term.

While crude oil futures have risen more than 40% since Israel and the U.S. launched joint airstrikes on February 28, the iShares Global Energy ETF - which tracks global energy companies - is up around 2%. That suggests that any immediate gains from increased prices will be temporary, or offset by reduced production.

Market Expectations for Oil Price Normalization

"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."

Supply Disruptions and Historical Parallels

Brent crude futures and U.S. West Texas Intermediate crude futures rose by around 30% to start the week, as the war on Iran has disrupted the passage of traffic in the Strait of Hormuz, oil and natural gas exports from the Middle East and has forced production stoppages.

At the same time, Brent's front-month contract hit an all-time high at around $36 per barrel over its 6-month delivery contract, indicating near-term supply tightness.

Comparisons to the 2008 Oil Price Rally

The rally conjured oil futures' 2008 all-time highs at around $147 per barrel, when tension between the West and Iran over its nuclear program, a weak U.S. dollar and inflationary factors pushed prices higher. Continued growth in China and other emerging economies was also expected to offset the impact of any fall in consumption in developed countries.

However, just months after the all-time high, the 2008 financial crisis and concerns around an overbought market sunk oil to below $40 per barrel, at the time the lowest since 2004.

Disconnect Between Oil Prices and Energy Stocks

"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."

Energy Giants and U.S. Shale Producers: Divergent Stock Movements

Shell shares rose as much as 4.9% on Monday from their close on Feb. 27, while Chevron gained 2.6% and Exxon gained 0.9% over the same period. BP gained 7.8%.

Investor Sentiment and Deferred Oil Contracts

Deferred oil contracts are not as high as the spot price, signaling that investors do not expect the supply disruption to last, said Simon Lack, portfolio manager of the Catalyst Energy Infrastructure Fund.

U.S. Shale Producers Outperform Global Majors

U.S. shale producers, which have seen a bigger boost in share prices than the global oil majors, may be benefitting because U.S. energy supply and infrastructure are safe and insulated from the risk, prompting investors to place a higher value on those companies, he added.

Diamondback, the largest independent producer in the Permian basin, has seen its shares gain as much as 7% on Monday from their close on February 27.

Outlook for Energy Stocks and Oil Prices

Simon Wong, a portfolio manager at Gabelli Funds, said share prices of Diamondback, APA Corp and Occidental had risen less year-to-date compared with Exxon and Chevron and are now beginning to catch up.

He also believes that the higher crude prices are temporary and will likely moderate when the disruptions are over.

(Reporting by Stephanie Kelly in London and Sheila Dang in Houston; Editing by Nathan Crooks and Edward Tobin)