Key Points
The fighting in the Middle East has sparked speculation that oil prices could spike.
Generally speaking, the higher those prices go, the better the results of energy companies.
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A fresh geopolitical crisis in the world's most important oil-producing region boosted the share prices of major oil companies on Monday, and ExxonMobil (NYSE: XOM) was no exception. The stock ended up coasting slightly higher than the essentially flat S&P 500 index with a gain of just over 1% that trading session.
The costs of conflict
Unrest in the Middle East, the world's most important oil-producing region, often raises concerns that oil prices will spike. That, naturally, can improve key fundamentals for major global suppliers like ExxonMobil and its peers.
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The conflict with Iran that erupted before the weekend could constrict oil supply (and hence lift prices) for several reasons, including the potential destruction of the country's production assets and threats to supply routes in the Straits of Hormuz.
Analysts forecast that the so-called "oil risk premium" will help improve the fundamentals of oil majors. On Monday morning, Bank of America's Jean Ann Salisbury raised her price targets on ExxonMobil and rival Chevron for this reason. Her new level for the former is $151 per share, up from $135, and for Chevron, it's $206, up from $188.
A long slog?
It's important to note that no serious damage to Iran's oil-producing capacity has yet been reported, but that could occur suddenly in a situation like this. It almost goes without saying that investors in ExxonMobil and other energy titles should keep a sharp eye on how the conflict develops. At the moment, I feel it has the potential to spread and endure longer than the short war some were predicting.
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Bank of America is an advertising partner of Motley Fool Money. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
