Geopolitics Could Drive Oil Prices for the Rest of 2018

Enbridge Inc. (TSX:ENB)(NYSE:ENB) and other Canadian oil and gas stocks have surged on geopolitical turmoil.

| More on:

Oil prices have reached three-year highs following a significant OPEC deal. U.S. president Donald Trump has put pressure on members, including Saudi Arabia, to work to reduce prices going forward. “The OPEC Monopoly must remember that gas prices are up and they are doing little to help,” Trump wrote on Twitter. “If anything, they are driving prices higher as the United States defends many of their members for very little $’s.”

“This must be a two way street,” he continued and concluded in all caps. “REDUCE PRICING NOW!”

The comments come off as somewhat bizarre, considering Trump’s decision to torpedo the Iranian nuclear deal. The re-imposition of sanctions will sink Iranian supply into the market, and OPEC has responded quickly by vowing to ramp up production at a recent meeting. The geopolitical situation has driven oil prices over the past year, and investors should probably expect a continuation of this in the second half of 2018.

The Trump administration has laid out a strategy that is designed to cripple the Iranian government from within and provoke regime change. A senior U.S. State Department official said recently that the administration would take measures against any country that did not reduce its oil imports from Iran to nothing by November 4. The Trump administration has said that it will not consider waivers for any country that does not comply.

In addition to crippling Iran’s oil industry, the U.S. also plans to curb global trading in Iranian gold, steel, coal, cars, currency, and debt. Oil sales generate 60% of Iran’s export income and recent moves have caused the Iranian rial to plunge 40%. The Trump administration is likely emboldened by what it has hailed as major progress with North Korea. Although no concrete deal has been achieved, President Trump managed to secure a face-to-face meeting with leader Kim Jong-un after imposing strong sanctions and threatening military action.

However, the U.S. still faces hurdles as it undertakes this unilateral policy. China and India, the two largest purchasers of Iranian oil, have refused to comply with U.S. demands to cut Iranian imports to “zero.” The ongoing trade spat between the U.S. and China adds a new dimension to this push for regime change.

Canadian energy stocks have continued to perform well following the scuttling of the Iran deal. Baytex Energy Corp. (TSX:BTE)(NYSE:BTE) was down 0.91% in late morning trading on July 5. The stock is up 16.4% in 2018 so far. Enbridge Inc. (TSX:ENB)(NYSE:ENB) has surged 16.2% over the past month. Suncor Energy Inc. (TSX:SU)(NYSE:SU) stock is up 17.1% in 2018 thus far. All three are solid options with oil and gas gaining serious momentum.

The Trump administration is unlikely to deviate from its aggressive push against Iran. It will likely apply pressure on the Saudi regime and other gulf states to reduce prices, but upward pressure should remain with uncertainty in global supply.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned. Tom Gardner owns shares of Twitter. The Motley Fool owns shares of Enbridge and Twitter.  Enbridge is a recommendation of Stock Advisor Canada.

More on Energy Stocks

engineer at wind farm
Energy Stocks

Invest $20,000 in This Dividend Stock for $100 in Monthly Passive Income

This dividend stock has it all – a strong outlook, monthly income, and even more to consider buying today.

Read more »

A worker overlooks an oil refinery plant.
Energy Stocks

Is Imperial Oil Stock a Buy, Sell, or Hold for 2025?

Valued at a market cap of $55 billion, Imperial Oil pays shareholders a growing dividend yield of 2.4%. Is the…

Read more »

Pumpjack in Alberta Canada
Energy Stocks

Where Will Imperial Oil Stock Be in 1 Year?

Imperial Oil is a TSX energy stock that has delivered market-thumping returns to shareholders over the last two decades.

Read more »

Pumpjack in Alberta Canada
Energy Stocks

1 Magnificent Energy Stock Down 17% to Buy and Hold Forever

Down over 17% from all-time highs, Headwater Exploration is a TSX energy stock that offers you a tasty dividend yield…

Read more »

Pumpjack in Alberta Canada
Energy Stocks

Is Cenovus Energy Stock a Good Buy?

Cenovus Energy (TSX:CVE) stock is primed for capital gains and strong total returns in 2025, driven by strategic buybacks and…

Read more »

Trans Alaska Pipeline with Autumn Colors
Energy Stocks

2 High-Yield Dividend Stocks That are Screaming Buys Right Now

Natural gas stocks like Peyto Exploration and Development are yielding above 7% today and look undervalued as natural gas strengthens.

Read more »

chart reflected in eyeglass lenses
Energy Stocks

Best Stock to Buy Right Now: Canadian Natural Resources vs Cenovus?

Want to invest in Canadian energy? Canadian Natural Resources and Cenovus Energy are two of the largest, but which one…

Read more »

oil pump jack under night sky
Energy Stocks

Where Will Cenovus Stock Be in 1/3/5 Years? 

Let's dive into whether Cenovus (TSX:CVE) stock is worth buying right now and where this stock could be headed over…

Read more »