Crude oil surges as US stocks plunge! A guide to finding energy stock opportunities amid the Hormuz crisis

Due to fears of a major supply shock amid the conflict in the Strait of Hormuz, WTI crude surged past $116, while U.S. stock futures plummeted.The reason lies in the fact that oil prices above $100 have reignited the "stagflation trade" that Wall Street dreads: higher fuel costs will drive up inflation, squeeze consumer spending, compress corporate profits, and make it harder for the Fed to ease policy.

The reason why the Strait of Hormuz has such a significant impact is that it is far more than just a symbolic passage; it is a literal physical chokepoint. According to data from the International Energy Agency (IEA), nearly 20 million barrels of crude oil flow through here daily by 2025, while the available alternative capacity is only about 3.5 to 5.5 million barrels per day. This is why the market repriced crude so aggressively. Once this channel is squeezed, there is no easy alternative route globally.

Treasure Hunt in the Supply Chain: Who Benefits the Most?

The operation of the oil industry chain is straightforward. Upstream companies are responsible for producing oil and gas. Midstream companies transport and store via pipelines and terminals. Downstream companies refine crude oil into fuels and chemicals.During sudden oil price surges, upstream companies typically enjoy the purest profit growth potential. The midstream sector tends to perform relatively steadily. The downstream sector faces the most challenging position because rising crude prices do not automatically translate into higher refining margins.

But remember to avoid Hormuz. Goldman Sachs' upstream risk exposure map shows that in a Hormuz crisis, the attractiveness of various oil giants varies significantly. TotalEnergies has24%of its upstream production exposed to this strait area, while Exxon Mobil's figure is20%, while ConocoPhillips is only at3%, and Chevron is as low as0%。The most perfect winners are undoubtedly the companies that can fully enjoy the benefits of rising oil prices without bearing excessive production risks in the Hormuz region.

First Tier: The Purest Winners

– $Occidental Petroleum (OXY.US)$ : It remains the most straightforward option for expressing a bullish view on crude oil. It has significant leverage over the production capacity of U.S. domestic, especially onshore shale oil. According to Reuters data, $Berkshire Hathaway-A (BRK.A.US)$ remains its largest shareholder, holding approximately27%. This is the most elastic oil stock with the Buffett halo.

– $ConocoPhillips (COP.US)$ : It also belongs to the first tier, with an extremely clean upstream business. Its direct upstream exposure in the Strait of Hormuz is only3%. This means it can benefit from rising crude oil prices while avoiding operational disruption risks faced by Exxon Mobil.

– $Chevron (CVX.US)$ : This is the most stable choice in the first tier. Although its explosive potential is slightly inferior to Occidental Petroleum,However, Chevron has zero upstream exposure in the Hormuz region. This means it enjoys significant benefits from rising oil prices while greatly avoiding direct geopolitical production risks. It also retains the Buffett halo, which is highly favored by retail investors.

Second tier: Still optimistic, but with slightly less purity

– $Exxon Mobil (XOM.US)$ : High oil prices are absolutely beneficial for this company, but it no longer possesses the pure characteristic of a geopolitical winner. According to Goldman Sachs, it has upstream exposure in Qatar and the UAE.20%This means that while Exxon Mobil can benefit from high oil prices, prolonged disruptions could expose it to direct regional risks that may offset some of the upside. It remains a valuable investment, though under these specific circumstances, its gains might not match those of Occidental Petroleum, ConocoPhillips, or Chevron.

– Midstream companies (such as $Kinder Morgan (KMI.US)$or $Williams (WMB.US)$）: For investors seeking stable trading, such stocks are also viable. They typically offer more stable cash flows and are less sensitive to commodity price fluctuations. While their upside potential is smaller, they are also less affected by chaotic situations. In the current environment of constant breaking news, this resilience is quite important.

How does this crisis differ from the one in 2022?

Comparing the current situation with the Russia-Ukraine conflict is very insightful, as the core mechanisms of the two are vastly different. In 2022, markets faced long-term sanctions and trade route restructuring. This time, the pressure mainly stems from direct blockage of physical shipping lanes. Such conditions can easily lead to an exceptionally sharp spike in crude oil prices in the short term.

Similarly, once the Strait of Hormuz reopens, the price drop will also be very rapid. The key consideration here goes beyond whether war-related news continues. The core indicator is whether tanker traffic will suffer substantial disruption over several weeks. Analysts cited by Reuters noted that if the disruption persists, high oil prices will remain for a long time; once the channel reopens, oil prices will inevitably plummet.

Summary

For the overall US stock market, oil prices above $100 pose a real downside risk. It reignites market fears over inflation, drags on economic growth, and weakens the rationale for rate cuts. However, amidst this panic, the energy sector remains a relatively safe haven that can outperform the broader market.

The ideal hunting ground should focus on specific regions, namely upstream companies with the purest oil price leverage and minimal direct risk exposure to the Hormuz production area. Based on this logic, $Occidental Petroleum (OXY.US)$ 、 $ConocoPhillips (COP.US)$ and $Chevron (CVX.US)$ is undoubtedly the top tier of current focus, while $Exxon Mobil (XOM.US)$ can only rank second due to its significantly higher regional risk exposure.

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