Shares of ExxonMobil (XOM -2.54%) were up as much as 2% earlier on Monday, before plunging to a 3.1% decline and then recovering slightly to a 2.5% decline to end the trading day.
There wasn’t any company-specific news today. However, the roller-coaster performance from the largest U.S.-based oil and gas giant came as investors initially feared a potential severe response from Iran to last weekend’s bombing of its nuclear facilities by the U.S.
But as news came in through the day, it appears the actual response was not as severe as feared. Thus, oil prices plunged, giving back not only the gains from earlier in the day, but also a portion of last week’s run-up in prices.
Buy the fears, sell the attack?
Since Israel struck Iranian military and nuclear targets beginning on June 13, oil and gas prices have been on the rise. The week’s conflict culminated on Saturday, with the U.S. bombing Iran’s nuclear sites at Fordo, Natanz, and Isfahan.
Investors likely braced for possible worst-case scenarios coming into this week, which might include Iran blockading the Strait of Hormuz. About 21% of the world’s oil flows through that narrow waterway between Iran and Oman, so if that narrow waterway were blocked, it could lead to a fairly large oil price spike.
However, Iran wound up initially responding by sending missiles toward a U.S. base in Qatar. While that is a real military response to the U.S. strike, it appears the attack was fairly telegraphed and symbolic. The missiles were intercepted by Qatar seemingly without issue.
Investors took the sending of a few missiles as a symbolic gesture that meant Iran wasn’t going to counter the U.S. strikes in a severe way, or attempt to escalate the conflict. Thus, investors “sold the news” on the Iranian response, sending Brent Crude Oil prices down 6.8% on the day and natural gas prices down 4%.
Image source: Getty Images.
Oil and gas stocks should remain volatile
An oil and gas shock in the Middle East won’t have the same consequences that it did back in the 1970s, as the invention of hydraulic fracturing has made the U.S. a global energy superpower and net energy exporter, rather than the importer it used to be. Still, a severe shock in the Middle East could still cause a big jump in oil prices, as we saw when Russia invaded Ukraine in 2022.
However, it appears the initial response from Iran to this past weekend’s attack was rather tame, sending a sigh of relief through markets on Monday.
Still, investors shouldn’t expect a quick end to this conflict. It’s possible more geopolitical events or shocks could come through the summer. Therefore, oil and gas stocks should remain part of one’s diversified portfolio, mainly as a hedge against worst-case geopolitical scenarios.
Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
