As Tropical Storm Francine wreaks havoc in the Gulf of Mexico, the price of oil has surged by nearly 3% to reach $68.50 per barrel. This sudden spike has provided a much-needed lift for oil stocks and exchange-traded funds (ETFs) after a recent decline in oil prices.
Oil prices had been on a downward trend, dropping to $65 per barrel earlier this week – the lowest level since 2021. Factors contributing to this decline included reduced demand from China and increased production in the United States.
However, the arrival of Tropical Storm Francine, though downgraded to a tropical storm after hitting Louisiana, has caused a disruption in oil supply, leading to the spike in prices. The storm has resulted in a production shut-in equivalent to 39% of the Gulf of Mexico’s output.
According to analysts at UBS, the storm has disrupted around 1.5 million barrels of U.S. oil production, leading to a reduction of approximately 50,000 barrels per day in September production from the Gulf of Mexico.
This supply constraint is expected to push oil prices higher in the coming months, with UBS analysts predicting prices could climb back above $80 per barrel.
Oil Stocks Rally in Response to Price Surge
The surge in oil prices has sparked a rally in oil stocks and ETFs. The SPDR® S&P Oil & Gas Equipment & Services ETF, Invesco Oil & Gas Services ETF, and ProShares Ultra Energy ETF all saw gains on Thursday.
Among individual oil stocks, Exxon Mobil, Sunoco LP, TotalEnergies, BP, and Sable Offshore Corp all experienced positive movement on Thursday, with analysts remaining bullish on their prospects.
Analysts’ Projections and Recommendations
Wall Street analysts have expressed optimism about the future of oil stocks, with price targets set above current levels for many companies. Stocks like Exxon Mobil, Sunoco LP, BP, TotalEnergies, and Sable Offshore Corp are all seen as having potential for growth.
While energy and oil stocks can be volatile, they are currently trading at attractive prices and may present investment opportunities for those willing to weather the market fluctuations.
Overall, the impact of Tropical Storm Francine on oil prices has created a ripple effect in the financial markets, leading to gains in oil stocks and ETFs. Investors should consider the potential for further price increases in the oil market and evaluate the opportunities presented by this shifting landscape.