What Happened?
A number of stocks jumped in the afternoon session after Iran ruled out extending a 60-day memorandum of understanding with the United States.
The June 17 memorandum was meant to reopen Hormuz while the two sides negotiated a nuclear deal within 60 days, CNBC reported. President Trump told Fox News he has “no time schedule” and is “not in a hurry.”
A senior Iranian official told Reuters that Tehran would shift from defense to offense if diplomacy fails. Energy stocks rebounded because they (energy companies) make more money when oil is scarce and expensive. If the strait stays blocked, less crude reaches the market, so the price of each barrel rises.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.
Among others, the following stocks were impacted:
- Mixed or Offshore Upstream E&P company Solaris Energy Infrastructure (NYSE: SEI) jumped 3.6%. Is now the time to buy Solaris Energy Infrastructure? Access our full analysis report here, it’s free.
- Mixed or Offshore Upstream E&P company SM Energy (NYSE: SM) jumped 4%. Is now the time to buy SM Energy? Access our full analysis report here, it’s free.
- U.S. Shale E&P company Chord Energy (NASDAQ: CHRD) jumped 3.6%. Is now the time to buy Chord Energy? Access our full analysis report here, it’s free.
Zooming In On SM Energy (SM)
SM Energy’s shares are extremely volatile and have had 30 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 3 days ago when the stock gained 4.9% on the news that the price of crude oil climbed due to escalating geopolitical tensions in the Middle East and persistent supply concerns.
West Texas Intermediate (WTI) crude, the U.S. benchmark, rose to over $81 per barrel, while Brent crude, the international standard, neared $90. The gains follow reports of stalled ceasefire talks and a U.S. threat to maintain an indefinite naval blockade on Iran. These developments heighten fears of a wider conflict that could disrupt supply, particularly through the Strait of Hormuz, a critical chokepoint where about one-fifth of the global oil supply transits daily.
While data from the U.S. Energy Information Administration showed a significant weekly build in commercial crude stocks, the market appears more focused on the substantial geopolitical risks. This has also kept average U.S. gasoline prices above $4 per gallon, reflecting the volatility in energy markets.
SM Energy is up 84% since the beginning of the year, and at $35.20 per share, it has set a new 52-week high. Investors who bought $1,000 worth of SM Energy’s shares 5 years ago would now be looking at an investment worth $2,124.
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