Image source: Olaf Kraak via Shell plc
Brent Crude oil is up 8% over the past year, currently trading at $90 per bbl. Since the end of June, it’s up 22%, and traded up to $96 last month. There are many FTSE 100 firms that will benefit from this jump. When I consider that some analysts are calling for oil to hit $100 within the coming few months, some stocks could be primed to rally.
Why oil could hit $100
The main driver in recent weeks for oil has been the escalation in tensions in the Middle East. The conflict between Israel and Palestine has sparked a move higher in the commodity. There are concerns about potential disruption to oil supply caused by the spreading of the conflict.
Another factor this year has been the ongoing war between Russia and Ukraine. The restriction on Russian oil has hampered supply. Further, output cuts from the governing body (OPEC) has further acted to push the price up.
Looking forward, I don’t see any reconciliation on the conflicts before the end of the year. It’s tough, but if this view is correct then I can only see the oil price hitting $100, and maybe even going higher.
However, a (much-hoped-for) peaceful resolution to both the issues in the Middle East and Russia/Ukraine would certainly change that.
Firms that could benefit
Let’s start with some of the obvious oil stocks that have benefited. Shell was in the headlines this week after the share price hit a record high. It’s up 23% this year alone, with the rising oil price a major factor in this move.
Other commodity firms such as BP have also seen a kick higher recently. For example, the BP share price is up 18% over the past three months, the period that coincides with oil having a sharp move higher.
I think this sector could continue to outperform the FTSE 100 index if the oil price keeps rising.
Some unusual ideas
Aside from specific oil companies, there are some other firms that should do well. One area is banks. The major players look after the debt funding, transactional activities and advisory services for the oil companies. As a result, if the likes of Shell and BP are making more money, demand for banking services will grow. For example, this could include corporate acquisitions.
The other angle to think about is hedge funds such as Pershing Square. The money managers have free reign on what assets to buy and sell. It wouldn’t surprise me if the team had bought oil in some form recently as a hedge against market uncertainty.
Therefore, it could stand to profit even more if oil hits $100. The share price should track the net asset value of the fund, so any profit should see the share price rise too.
