The threat of military strikes by the US and its allies could disrupt oil trade in the Middle East, prompting major price spikes for crude and a rise in oil stocks…
Two weeks ago the “red line” for declaring war on Syria was crossed, as rebel forces claimed that a chemical weapons attack was unleashed by the Syrian government in a small town near Damascus, killing hundreds of people.
While investigations are underway to confirm whether or not the claim was accurate, the Obama administration has wasted no time condemning President Assad’s regime, saying they had “no doubt” that chemical weapons were used.
In light of this, the US openly announced that they are strongly considering a military strike.
…But Syria in fact has some serious muscle behind them.
The likes of Russia, Iran and China have openly expressed their support of President Assad.
So for a variety of economic reasons, it’s not surprising to see why Syria is a powder keg that could lead to much larger geo-political issues down the road.
Russia is one of Syria’s biggest arms suppliers and remains concerned over US political and economic intentions in the Middle East. From the Russians’ point of view, a growing US presence in the region poses a real threat to Russia’s own influential position.
Iran sees Syria as one of its few close allies, both religiously and strategically. Iran is Shiite Muslim-dominated while the Syrian government is primarily of Shiite descent. Syrian rebels, on the other hand, are Sunni-dominated, as are a number of other Persian Gulf nations, including Iraq.
China may be a more neutral supporter, as they are opposed to the use of chemical weapons and are supporting the UN’s investigation into Syria’s recent attack. However, China sees Syria as a vital trading hub into the Middle East and has repeatedly blocked sanction attempts against the Syrian government. It even walked out of the recent UN Security Council meeting where Britain was seeking authorization to use force against Syria.
Because of these dilemmas, I believe the tense diplomatic chest-beating will continue.
But of course, the calm before the potential storm is only going to continue fanning the flames of one key industry: oil.
How To Prepare For A Spike In Oil Prices
Whenever there is conflict anywhere in the oil and gas-rich Middle East, global fuel supplies are typically threatened.
With the situation in Syria, it’s no different.
Recently, the price of oil climbed above $109 a barrel, its highest in more than two years – and it could ride higher!
According to the Daily Telegraph, production slumps in countries like Iraq, Nigeria, Iran, Yemen, and even Syria, have cut daily global supply by 1.1 million barrels over the past year to 92 million barrels.
The Bank of America further states that there is already a global shortfall in oil, and that the shortfall has reached 4 million bpd.
All this has helped to push oil prices up to their highest level since May 2011.
But how should investors prepare for the worst-case scenario of an oil price spike?
With the potential for further disruptions to Middle Eastern crude on the horizon, US oil stocks are bound to reap the profits.
Goldman Sachs recently identified their four best oil stocks to buy…
Best Oil Stocks to Buy Now:
At the top of their list is Marathon Petroleum Corp. (NYSE:MPC). Marathon’s Q2 results reported revenues of over $25 billion, which was an increase of 26% year over year. Goldman placed a target price of $120 which would mean a 60% gain from today’s level of $73.
Marathon was followed by Halliburton Co. (NYSE:HAL). As hydraulic fracking continues to rise in popularity among producers and oil prices stay heightened, Halliburton is firmly in the driver seat for growth. Goldman has forecast Halliburton’s stock to reach $60, which is approximately 33% higher than today’s price of $48.
In third spot is Devon Energy (NYSE:DVN). Last quarter, Devon reported net earnings of $683 million, or $1.68 a share — a staggering 43% jump from a year earlier. Revenues increased 21% to $3.09 billion on strong US light-oil growth. Goldman predicts a target of $70 for Devon, giving the company a 20% premium from its current $56 share price.
The final company on Goldman’s bullish list is Southwestern Energy (NYSE:SWN). Southwestern saw its Q2 revenue rise 42% to $862 million. Though the Company has strong exposure to natural gas, it’s easy to forget that the Middle East is also a major gas-producing region with Iran, Qatar and Saudi Arabia all in the global top ten. Gas supplies could also be under threat should the Syrian conflict take a turn for the worst. Goldman has a price target of $51 for Southwestern, a 35% increase from its present price of $38.
Out of the four, I believe that Marathon has the best potential for a rally as it’s taken a bit of a dip since it’s year-to-date high of $92 back in March.
It doesn’t appear that Middle Eastern concerns have been priced into the stock just yet, which makes today an excellent entry point before a decision is made on Syria.