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Middle East Tensions Drive US Oil Demand: 4 Likely Gainers

Nilanjan Banerjee

Tensions in the Middle East are not only lending support to oil prices but are also helping the United States steal market power from the OPEC in the crude export race. This is because crude shipments through the Strait of Hormuz, touted as the most important global passage, situated between Iran and Oman might get disrupted by the escalating tensions between Washington and Tehran.

President Donald Trump has entreated nations with excessive dependence on Middle East oil to safeguard their ships or vessels while transporting crude through the unsafe strait.

Intensifying US-Iran Tensions

The Global Hawk surveillance drone, manufactured by the United States, was shot down last week by the Revolutionary Guard of Iran. Tehran, the capital city, alleged that close to the Strait of Hormuz, the drone had breached the airspace of Iran. To make its voice stronger and clearer, Tehran even insisted that the drone’s debris has been found within its inland waters.

However, Washington rubbished the accusation and added that the drone was intercepted over the international airspace. The drone attack followed the attack on two oil tankers that occurred on Jun 13 in the Gulf of Oman for which, the United States blamed Tehran.

Overall, tensions are probably bringing the United States and Iran on the verge of war after Washington recently stepped back from launching planned airstrikes when the U.S. drone was shot down.

US Oil Demand Soaring

Instead of retaliating for the time being, Trump has stepped up to impose new sanctions after Washington took steps last April to prevent all countries from purchasing crude from Tehran.  Sanctions on oil export hurt Iran as the country’s economy is primarily dependent on export revenues from the commodity.

Notably, the rising friction between the countries might disrupt the shipment of crude through the Strait of Hormuz, responsible for the passage of 20% of the total crude oil being consumed in the world, per media report. Through the strait, majority of the crude volumes of countries like Kuwait, UAE, Iraq and Saudi Arabia are being exported. Iran has reportedly warned that if its economy is hit by America’s sanction on its crude export, it will attempt to thwart the passage of oil tankers through the strait.

With the flared-up tensions, the rate of tankers or carriers of crude through the Strait of Hormuz has skyrocketed, per the data provided by Jefferies Financial Group Inc. This has opened up possibilities of more U.S. crude export. In fact, this June will see the loading of 21 VLCCs (very large crude carrier) in the Gulf Cost of the United States, surpassing March’s record of 17 VLCCs, according to RBC Capital Markets. 

The rising crude export volumes from the United States have been reflected in the data provided by the U.S. Energy Information Administration (EIA). Notably, EIA’s latest data showed that through the week ended Jun 14, U.S. oil volumes that were exported totaled 3.4 million barrels per day, almost near the record of 3.6 million barrels per day through the week ended Feb 15.

Which Stocks Might Gain?

With demand for U.S. crude rising across the world, the imported volumes of oil from OPEC countries have slipped to the lowest level in 30 years, per media reports. As a result, the upstream and the midstream energy firms in the United States are well positioned to gain.

Midstream players with extensive oil pipeline network, storage assets and providing services in the terminals to load cargo are poised to gain from the rising U.S. crude export volumes. Moreover, explorers and producers in the prolific shale plays that are contributing to the production growth are also expected to gain.

It seems to be an opportune time for energy investors to consider midstream and upstream stocks.  Here, we present one stock with a Zacks Rank #1 (Strong Buy) that is well positioned to gain. There are three other stocks with a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Headquartered in Houston, TX, Enterprise Products Partners LP EPD has a pipeline network that spreads across roughly 49,200 miles. Apart from storage assets, the partnership has several facilities for exporting commodities in the U.S. gulf coast region.

The largest crude exporter currently sports a Zacks Rank #1 (Strong Buy). Notably, through 2019, the partnership is likely to see earnings growth of almost 10%.

Magellan Midstream Partners LP MMP, headquartered in Tulsa, OK, is also well-positioned to capitalize on the growing demand for crude oil storage properties along with new facilities for exporting the commodity. Through a joint venture with LBC Tank Terminals, the partnership has operations related to loading of super tankers in the dock along with storage of crude along the Gulf Coast region in the United States.

The partnership, with a Zacks Rank #3 (Hold), has witnessed positive earnings estimate revisions in the past 60 days.

With the divestment of its Eagle Ford resources, Pioneer Natural Resources Company PXD has become a pure-play Permian stock. Since the Permian basin has surpassed other shale plays in the United States to boost the country’s oil production and backing crude export volumes, Pioneer Natural is well positioned to gain. 

The stock with Zacks Rank of 3 is likely to see earnings growth of 45.2% through 2019.

Headquartered in Midland, TX, Diamondback Energy Inc FANG is a pure-play Permian player with presence across more than 344,000 net acres in the Permian. The #3 Ranked stock is likely to see earnings growth of nearly 37% through 2019.

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Magellan Midstream Partners, L.P. (MMP) : Free Stock Analysis Report
 
Enterprise Products Partners L.P. (EPD) : Free Stock Analysis Report
 
Diamondback Energy, Inc. (FANG) : Free Stock Analysis Report
 
Pioneer Natural Resources Company (PXD) : Free Stock Analysis Report
 
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