UK energy stocks are leading gains on the FTSE 100 today as crude oil and natural gas prices rebound, boosting sentiment across the sector. BP stock climbed to 534p, up 18.5% from its July low and 63% above its lowest level last year. Shell shares rose to 3,345p, extending their recovery to 16% above their year-to-date low.
BP and Shell shares have jumped: Source: TradingView
Crude oil prices are rebounding
Crude oil prices are rising again as investors predict that the US-Iran war will be here for a long time. Brent, the global benchmark, jumped to $89.8, its highest level since July 31st. The West Texas Intermediate (WTI) rose to $84.2.
This rebound may continue in the foreseeable future after the recent statements from the US and Iran. In a statement to Axios, Trump said that he was “low-keying” his approach to Iran and focusing on economic pressure.
Trump is not in a hurry to resume fighting for two reasons. First, General Dan Caine, the Chairman of the Joint Chiefs of Staff, has argued that continuing the kinetic actions will not achieve any strategic goals.
Second, and perhaps most importantly, the US is facing constraints on its stockpiles of some of its most advanced weapons, potentially limiting its ability to protect American bases and regional allies in the event of a renewed conflict.
A return to fighting could therefore have significant military and geopolitical consequences. Recently, when Trump warned that the US could target Iranian bridges and power plants, Saudi Arabia and other Gulf allies reportedly urged him not to escalate the strikes.
On the other hand, Iran has laid out its list of demandsfor reopening the Strait of Hormuz. These demands include the end of the blockade and military threat, lifting US sanctions, and compensation for war losses. In a separate statement on Monday, Trump also said that the US would demand reparations from Iran.
Therefore, there is a risk that the Strait of Hormuz will be closed for longer. Also, there is a risk that the Houthis will continue attacking ships crossing the Bab el-Mandeb Strait.
Shell and BP shares will benefit from the higher energy prices
UK energy stocks are doing well because of the rising prices. In their recent results, the two companies demonstrated their strong revenue and profits as the US-Iran war gained steam.
In its last results, BP said that its underlying replacement cost profit jumped to $5.7 billion in the second quarter from $3.2 billion in the previous one. The operating cash flow jumped to $10.9 billion, which helped the company to boost its dividend and share buyback. BP also announced its plan to sell its North Sea business.
Similarly, Shell said that its adjusted earnings jumped to $9.8 billion, with most of its businesses doing well. The company has also announced a big reduction in operational costs, which have jumped to $5.8 billion since 2022.
Other global energy companies like TotalEnergies, Chevron, and ExxonMobil also released strong revenue and earnings growth.
Their performance will now depend on how the US-Iran war evolves, with Polymarket data showing odds of a nuclear deal by December 31st to 23%.
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