Oil Prices Slide on US-Iran Deal: 3 Energy Stocks Worth Watching

The United States and Iran have announced a preliminary deal to end the conflict in the Middle East, and a memorandum of understanding is set to be signed on Friday in Switzerland. The signing of the memorandum is expected to reopen the Strait of Hormuz, allowing vessels to pass and ending the U.S. naval blockade of Iranian ports, removing a major bottleneck that had disrupted global oil and gas flows. The Strait of Hormuz is a critical chokepoint that accounts for nearly one-fifth of the world’s total oil flows.

Strait of Hormuz Set to Reopen: What It Means for Oil Markets

Following news of the preliminary deal, oil prices have dropped sharply from the $100 per barrel highs reached in the previous month. According to the data from Yahoo Finance, the West Texas Intermediate (“WTI”) crude futures (July 26) dropped roughly 5% to close at $76.05 per barrel on June 16. The drop in oil prices reflects the easing of the conflict and a step toward normalizing energy flows through the Strait of Hormuz.

While the conflict between the United States and Iran is expected to end soon, the energy market crisis may not entirely subside as quickly. The conflict damaged several energy facilities across the Middle East, including refineries and LNG production plants. As a result, Gulf oil and gas production is expected to recover slowly over time. As such, oil prices currently remain well above pre-war levels, and that premium is likely to persist.

Which E&P Stocks Can Weather Oil Price Volatility?

Amid this backdrop, will exploration and production players, including Exxon Mobil Corporation XOM, ConocoPhillips COP and EOG Resources EOG, remain profitable? Let us understand.

ExxonMobil continues to strengthen its production basethrough its most advantaged assets in Guyana and the Permian Basin. In the Permian Basin, the company intends to raise its full-year production from the prolific basin to 1.8 million oil equivalent barrels through the remainder of 2026. In Guyana, the company is advancing several projects at the Stabroek Block, including Uaru, Whiptail and Hammerhead. This is expected to further increase its production levels in Guyana.

ExxonMobil’s advantaged upstream assets are characterized by a lower emissions profile and low cost of production. This is expected to keep its upstream business profitable amid volatility in the commodity pricing scenario.

ConocoPhillips has a diversified asset base spanning 14 countries worldwide. Notably, the energy firm’s assets in the U.S. Lower 48 are spread across major shale basins, including the Delaware Basin, Midland Basin, Eagle Ford and Bakken shale. These assets offer deep, durable and capital-efficient drilling inventory and contributed to the majority of its consolidated liquids production.  COP’s overall production also includes oil-sands assets in Canada and conventional assets in Asia, Europe and the Middle East, which support low-cost operations. The company’s high-quality, low-cost portfolio of assets makes it resilient to volatility in oil prices and enables it to generate strong cash flows.

EOG Resources boasts a diversified production profile aided by a multi-basin portfolio of oil, natural gas liquids (NGLs) and natural gas assets. The company's core producing regions include the Delaware Basin, Eagle Ford, Utica, Dorado gas play, Powder River Basin and Williston Basin, providing significant operational flexibility and commodity diversification. Management has highlighted that the Encino acquisition increased oil production by approximately 10%, while the company's long-term production growth has added nearly 100,000 barrels per day (bpd) of oil, more than 140,000 Bpd of NGLs and almost 1.6 billion cubic feet per day of natural gas since early 2022. EOG has a balanced production mix, which should enable the company to generate steady returns across commodity cycles and support strong free cash flow generation.

XOM, COP and EOG each carry a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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