Oil Shock Expected to Send Gas Prices Higher: How Big Will the Jump Be?

Oil USO +4.69% ▲ prices jumped sharply after U.S. and Israeli strikes on Iran reportedly killed the country’s supreme leader. At the time of writing, U.S. crude oil climbed more than 4.6%, while Brent crude, the global benchmark, surged about 5%. For U.S. crude, that meant an increase of roughly $4 per barrel. As a result, consumers may soon feel the impact, since gas prices typically rise about 2.5 cents per gallon for every $1 increase in crude oil. With oil up sharply, analysts say prices at the pump could increase as early as Monday.

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Meanwhile, the bigger problem is Iran’s influence over the Strait of Hormuz, which is a key shipping route that handles more than 20% of the world’s daily oil supply. Although Iran produces less than 5% of global oil, any disruption to this narrow waterway could significantly impact global markets. In fact, at least six major cargo shipping companies have already said they are halting or rerouting vessels that were scheduled to pass through the strait. Therefore, analysts warn that although geopolitical oil shocks often fade quickly, volatility could stick around if the conflict lasts for an extended period of time.

At the same time, energy markets are watching how oil-producing nations respond. On Sunday, eight OPEC+ countries announced plans to increase output by more than 200,000 barrels per day next month in an attempt to calm prices. In addition to oil, natural gas markets are also feeling the pressure. In fact, Qatar, the world’s second-largest exporter of liquefied natural gas after the U.S., paused LNG production due to military attacks on its facilities. Consequently, U.S. natural gas prices rose about 5%, while European gas futures surged roughly 45%.

Which Energy Stock Is the Better Buy?

Turning to Wall Street, analysts think that SLB stock has the most room to run. In fact, SLB’s average price target of $53.58 per share implies 5.1% upside potential, while most other stocks pictured below are expected to fall slightly. Nevertheless, it’s worth noting that energy stocks have already seen strong year-to-date gains, and the conflict in Iran could prompt analysts to rethink their price targets.

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