Energy companies that could benefit from increased tensions in the Middle East
Eoin Treacy's view Tunisia,
Egypt, Libya, Yemen, Iran, Syria, Jordan among others are increasingly dominating
headlines because of social unrest. These countries all share one primary characteristic
apart from geography and language. They all have massive young populations.
Millions of young people are now at an age where they are entering the work
force, forming families and in need of food, shelter and employment. Governments
in all of these counties have demonstrated an inability to cater for the needs
of their rapidly increasing populations. This fundamental factor is helping
to support popular protest in a number of countries but it is not at all certain
that an alternative government will do any better.
Neither Tunisia nor Egypt is a significant oil exporter. Libya is and supply from at least one of its fields has been disabled. This has put upward pressure on oil prices but also highlights the risk of relying on Middle Eastern oil supply in the current volatile political environment. Therefore, companies with access to significant oil reserves in politically secure parts of the world could attract a premium.
Suncor's Canadian tar sands are one such candidate. The share has been ranging between $30 and $40 since July 2009 and broke upwards three weeks ago. A sustained move back below $40 would be required to question recovery potential. Canadian Natural Resources completed a yearlong range in December, consolidated above $40 and broke upwards again last week.
Sasol has a close relationship with the Qatar but its coal-to-liquid and gas-to-liquids technology is attractive in an environment where supply could be a concern. It remains in a relatively consistent medium-term uptrend and a sustained move below ZAR 36,000 would be required to question medium-term upside potential.
US oil companies with a focus on domestic supply could also benefit from the current turmoil. Chevron is one of the better performers and is approaching the psychological $100 level following an already impressive advance. (Also see Comment of the Day on December 6th) Of the shares mentioned on December 6th Murphy Oil is the least overextended and has catch-up potential.
Oil Service companies such as Schlumberger and Halliburton, last reviewed on January 25th, are also likely to continue to benefit from firm oil prices.