What Happened?
Shares of oil and gas producer SM Energy (NYSE: SM) jumped 3.5% in the morning session after Energy Sector Climbs as Oil Prices Top $103 on Middle East Supply Disruptions.
Crude oil prices surged past $103 per barrel, driven by Middle East conflict and pipeline disruptions in Saudi Arabia. Global crude benchmarks rallied after geopolitical tensions in the Middle East and an outage on Saudi Arabia’s East-West pipeline raised fresh supply concerns, according to Reuters. U.S. crude traded above $103 per barrel, while international benchmark Brent advanced to around $107 as of this writing. Higher crude prices support energy producers’ margins and cash flows by lifting the price received for petroleum output. Even as rising oil prices and climbing Treasury yields created headwinds for the broader equity market, energy stocks advanced as investors rotated into companies positioned to benefit from tighter global oil supply.
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What Is The Market Telling Us
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 7 days ago when the stock gained 3.1% on the news that crude oil prices climbed sharply following strikes on Saudi Arabian energy facilities and mounting supply disruption fears in the Middle East, according to Bloomberg. The Saudi energy ministry reported that operations at several energy facilities in the country's south were halted after missile and drone strikes from Yemen's Houthis ignited fires, wounding more than 70 people. The Financial Times also reported that Saudi Aramco’s oil facilities in Jizan—home to a major 400,000-barrel-per-day refinery—were targeted in the extensive barrage, causing local authorities to suspend operations to contain the damage and assess infrastructure. Following the energy ministry's statement, global benchmark Brent crude futures rose $1.00 to settle over $98.00 a barrel, while U.S. West Texas Intermediate (WTI) crude futures rose over $2.00 to reach $93.65 a barrel, according to Reuters. Elevated crude prices provide a significant tailwind for oil and gas producers, directly expanding operating profit margins and boosting free cash flow on extracted barrels.
SM Energy is up 115% since the beginning of the year, and at $41.11 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 $1,786.
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