BP and Shell shares climbed on Wednesday as oil extended its rise amid a widening war between the United States and Iran.
Shares in BP (LSE:BP) and Shell (LSE:SHEL) rose again on Wednesday, extending a rally in UK oil majors as crude prices pushed higher on an escalating war between the United States and Iran. The move builds on gains made over the past two trading sessions.
BP shares are trading at 538.2p in late morning dealings on Wednesday, up 1.68% from Tuesday’s close of 529.3p. Shell shares are up 1.74% at 3,310.5p, having closed Tuesday at 3,254p. Both stocks remain below their highs for the year: BP peaked at 609.4p in March and Shell reached 3,758.5p in early June. Both are also well above last year’s lows of 393.3p for BP and roughly 2,554p for Shell.
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Why oil is climbing again
Oil prices have risen as the conflict between Washington and Tehran, which began at the end of February, shows fresh signs of escalating. US forces completed an 11th consecutive night of air strikes on Iran late on Tuesday, and Brent crude was up as much as 4% on Wednesday, according to CNBC, after Secretary of State Marco Rubio said Iran was “not serious” about peace talks.
The conflict has also spread to shipping lanes. Yemen’s Houthi rebels declared what Reuters described as a “maritime embargo” on Saudi Arabia this week, and two Saudi oil tankers reversed course in the Red Sea on Tuesday after Houthi threats, according to the Insurance Journal. Separately, Reuters reported that vessel crossings through the Strait of Hormuz, which carries about a fifth of the world’s oil and gas, fell further on Tuesday amid lingering security concerns.
This is not the first time the war has driven BP and Shell shares higher. BP’s stock rallied as much as 28% after the conflict began before giving back about a fifth of that gain from its March peak, according to the Telegraph. Oil prices had briefly returned to pre-war levels in June after an interim US-Iran deal reopened the Strait of Hormuz, only for renewed disputes over the waterway to send energy costs spiking again.
Sentiment on the oil majors has turned more constructive since Shell’s second-quarter trading update earlier this month. Jefferies raised its cash-flow forecast for the group by 16% and reiterated a Buy rating with a 4,500p price target, implying about 49% upside at the time, according to Proactive. Citi also lifted its earnings forecasts for Shell, pointing to stronger oil trading and chemical margins.
Shell reports second-quarter results on July 30 and BP follows on August 4, giving markets their clearest look yet at how the swings in crude have fed through to profit. Traders will also be watching for any sign of a de-escalation between Washington and Tehran, and whether traffic through the Strait of Hormuz stabilises. For now, BP and Shell’s fortunes remain tied to a war that shows no sign of ending.