How Oil Sanctions Against Iran Impact Energy Stocks
NEW YORK ( Trefis) -- Crude oil is arguably the most important commodity in the world today. All eyes are on crude oil prices and oil's dynamics because no country can satisfy its domestic oil demand independently and because countries rely heavily on oil for industrial and retail uses.
According to the International Energy Agency, at present price levels, the world's oil import bill could reach as high as $2 trillion in 2012, which would be near 3.3% of global GDP of almost $60 trillion. Let's look at how inflated oil prices can impact some of the oil-and-gas and energy companies like Chesapeake Energy (CHK) , Exxon Mobil (XOM) , Baker Hughes (BHI) and Halliburton (HAL) .
Iran's effort to enrich nuclear fuel hasn't been accepted positively by western nations, especially in the U.S. As a result, to paralyze the Iranian economy and tumble their nuclear ambitions, several countries led by Europe and the U.S. have leveled sanctions against Iranian oil. U.S. President Obama has been scouting for and endorsing alternative resources for oil and after consultation with major oil exporters has decided to raise the sanctions against Iran oil imports.
Amid this political upheaval, crude oil prices have increased drastically on speculation of declining supply. While such high oil prices are unsustainable without impacting demand, in the near future we do not expect prices to settle down as the global political climate relating to crude oil remains unnerving. IMF President Christine Lagarde has also expressed concerns and has warned of a 20%-to-30% jump in crude oil prices. While this could impact overall economic growth, this is a great opportunity for oil and gas as well as oil services companies in the U.S.
Oil and Gas Production Companies
For oil and gas companies like Exxon Mobil, this environment creates opportunities to ramp up the production and try to satisfy the domestic U.S. demand and grow exports. We believe that the average oil prices and production volumes will be impacted. Below is the realized sales price for oil and natural gas liquids for Exxon which you can modify to see the impact on its estimated fair value.
Rig Services Providers
Companies like Baker Hughes and Halliburton will benefit from the enhanced production requirements, and hence, would be able to claim higher realizations per rig. Below you can see how higher realizations per rig can impact the stock price estimate for Baker Hughes.
Click here to find out how a company's products impact its stock price at Trefis