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Oil Price Spurts as Tensions Intensify in the Strait of Hormuz

Energy traders are currently focusing on the confrontation of a Western warship with the naval forces of Iran, the first such hostility since the tensions between Washington and Tehran started mounting.

This isn’t surprising as Tehran had reportedly made threats that if its economy is hit by America’s sanctions, it will attempt to thwart the passage of oil tankers through the Strait of Hormuz, a major crude artery in the world. Among the new sanctions imposed by the United States on Iran over the past year, with Tehran claiming that it has started enriching the level of uranium above limits, some directly target the Asian country’s crude oil export. This has irked Iran as the country’s economy is heavily dependent on the export of the commodity.

UK Navy Targets Iranian Vessels

HMS Montrose, a British frigate, trained its guns on three ships of Iran after BP plc BP-operated British Heritage was supposedly intercepted in the Strait of Hormuz. British Heritage was coming from the Persian Gulf when Iranian boats tried to block the course of the crude tanker. Later on, the Royal navy ship forced Iranian ships to turn away.

Washington and London have been accusing Tehran of escalating assaults by the Islamic Revolutionary Guard of Iran on tankers carrying oil through the strait. However, news agencies of Tehran revealed that the Islamic Revolutionary Guard was not responsible for the attacks.  

How the Incident Favors Oil Price

The Strait of Hormuz is touted as the most important global passage for transporting crude. Per the U.S. Energy Information Administration (EIA), the Strait was responsible for the passage of 21 million barrel of oil every day in 2018. This accounted for an equivalent of 21% of the consumption volumes of petroleum liquids across the globe, added EIA.

Unlike most choke points, the passage of oil tankers through the Strait of Hormuz can’t be avoided by taking alternative routes, revealed EIA. Hence, the strike on several oil tankers in or near the Strait could lead to a further rise in shipping costs. This in turn acted as a catalyst for crude prices. While the West Texas Intermediate (WTI) crude recently traded at its highest level of $60.94 a barrel since May 23, Brent crude reached the highest mark of $67.65 since May 30.   

Time to Keep a Track of Oil Stocks

Since the fate of crude exploration and production companies is positively correlated with oil price, the recent rally in the commodity certainly bodes well for crude energy majors. Four such stocks are ConocoPhillips COP, Exxon Mobil Corp. XOM, Royal Dutch Shell plc RDS.A and Chevron Corp. CVX, each with a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Royal Dutch Shell PLC (RDS.A): Free Stock Analysis Report
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BP p.l.c. (BP): Free Stock Analysis Report
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