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Geopolitical Tensions Drive Crude Oil Prices Up
Crude oil prices have surged in recent days due to escalating geopolitical tensions in the Middle East, particularly in light of a looming deadline for Iran to agree to a revised nuclear deal with the United States. This situation has intensified following a sixty-day ultimatum issued by President Trump, set to expire soon, combined with Israel’s calls for direct US intervention concerning Iran’s uranium enrichment.
Additionally, the US has ordered a limited withdrawal of diplomatic staff from its embassies in Iraq, Bahrain, and Kuwait, a move often indicative of increased security threats or potential military action. Iranian officials have reacted defiantly, threatening US military assets and bases in the region. Compounding these tensions is a report from the International Atomic Energy Agency (IAEA) revealing a significant increase in Iran’s stockpile of 60% enriched uranium, capable of facilitating the production of up to ten nuclear weapons with further processing.
In response to these tensions, Brent crude oil prices—a key global oil benchmark—have climbed. Brent crude is often preferred during Middle Eastern turmoil due to its relevance in the seaborne oil market and stability associated with North Sea production. Unlike West Texas Intermediate (WTI), which tracks US onshore supplies, Brent is more susceptible to global disruptions and shipping threats in the Strait of Hormuz, a crucial transit route for around 20% of the world’s oil.
On the Australian Stock Exchange (ASX), major energy companies including Woodside Energy (ASX: WDS) and Santos (ASX: STO) have benefited from the climb in crude prices, although their overall share performance has been lacklustre over the past year and a half compared to the broader ASX 200 Index. Despite recent upward trends since April lows, a closer examination of their fundamentals, technicals, and broker assessments is essential for understanding their future prospects.
Woodside Energy (WDS) Overview
Key Underperformance Reasons:
- Dilution and Debt Concerns: Market scepticism regarding financial discipline post-BHP Petroleum merger.
- Asian LNG Market Dynamics: Softer LNG prices resulting from warmer weather and oversupply.
- Regulatory Issues: Delays and complications affecting new projects like Scarborough and Browse.
Earnings Trends:
Current projections indicate WDS’s earnings per share (EPS) is anticipated to fall to $1.51 for FY25, dropping even further to $0.96 in FY26, before a potential rebound to $1.57 in FY27.
Technical Analysis:
Current technical indicators show a neutral trend for WDS, characterized by an upward short-term trend countered by a long-term downtrend. The price movements may suggest a transitional phase, where breaching long-term downtrend levels could initiate a new uptrend.
Broker Consensus:
WDS maintains a Broker Consensus Rating of BUY with an average target of $25.45, indicating a potential undervaluation of around 8.2% from the last closing price of $23.52.
Santos (STO) Overview
Key Underperformance Reasons:
- Limited Production Capacity: Heavy reliance on local gas contracts reduces exposure to higher global oil prices.
- Barossa Project Setbacks: Environmental controversies are delaying key developments.
- M&A Fatigue: Investor wariness around failed merger efforts, particularly the Oil Search attempt.
Earnings Trends:
For FY25, STO’s EPS is predicted to drop to $0.51 before improving to $0.63 in FY26 and to $0.69 in FY27.
Technical Analysis:
STO shows a neutral but improving trend bias. The stock recently crossed above its long-term trend ribbon, indicating potential upward momentum if it maintains this position and does not revert below the short-term uptrend ribbon.
Broker Consensus:
STO’s Broker Consensus Rating is also BUY, with a target of $7.47, suggesting a valuation increase of approximately 11.5% from a recent price of $6.70.
Conclusion: Key Considerations Ahead
As the market turns its attention to the impeding deadline regarding US-Iran relations, and in light of the historical volatility of oil prices during conflicts—such as spikes observed following significant geopolitical events—both Woodside and Santos may be poised to leverage any heightened tensions to extend their recent recoveries.
This upcoming period could prove crucial for investors as both stocks navigate the delicate balance of ongoing geopolitical risks and their respective market positions. For those interested in refining their understanding of technical analysis, resources are available for further study.
