Brent crude rose more than 4% after Iran again shut the Strait of Hormuz, lifting shares in Shell and BP.
Shares in Shell (LSE:SHEL) and BP (LSE:BPL) are rising on Monday after a fresh round of US and Iranian strikes over the weekend sent oil prices sharply higher. Brent crude climbed more than 4% after Iran said it had closed the Strait of Hormuz, one of the world’s most important routes for seaborne oil.
Shell shares are trading at 3,064.5p, up 0.9% from Friday’s close of 3,038.5p, having touched an intraday high of 3,101.5p. BP shares are up more sharply, gaining 2.1% to 492.7p from a previous close of 482.65p, with an intraday high of 497.45p. Both stocks remain well below levels seen earlier this year: Shell closed at 2,872.5p on 1 July and BP at 455.6p the same day, before Monday’s jump in crude helped both recover some lost ground.
What’s driving oil higher
Oil prices rose after Iran said on Sunday it had shut the Strait of Hormuz “until further notice”, following a wave of US air strikes and its attack on a commercial vessel in the waterway. According to CNBC, the US military hit 140 targets in Iran on Saturday and launched further strikes on Sunday; Iran responded by striking US military facilities in Jordan, Kuwait, Bahrain and Oman. US Central Command disputed Iran’s closure claim, saying the strait remained open to lawful transit.
According to CNBC, Sunday’s strikes were the fourth time in the past week that the US had bombed Iran, underlining that this is an escalation of an existing conflict rather than a new one. The latest fighting stems from rival interpretations of how Hormuz was meant to reopen under an interim peace deal the US and Iran signed on 17 June. About 20% of the world’s oil supplies passed through Hormuz before the US and Israel first struck Iran on 28 February, according to CNBC.
Shipping through the strait had picked up again after the June truce, before Sunday’s strikes reversed that recovery. David Fyfe, chief economist at Argus, told CNBC that vessel transits had fallen to “single digits” over the weekend, down from 30 to 40 tankers and bulkers a week earlier.
Shell carries an average analyst price target of 3,731p, more than 20% above its current level. BP’s average target stands at 596p, also above where the stock trades today. Both point to continued market confidence that any earnings boost from higher crude prices will be sustained.
Markets will watch for further statements from Centcom and Tehran on whether Hormuz stays open, given the strait’s importance to global energy supply. Shell is due to report earnings on 30 July, when markets should get a clearer picture of how higher crude prices are feeding into profits. For now, the direction of both stocks looks tied to how long the fighting around Hormuz continues.