What Happened?
A number of stocks jumped in the afternoon session after crude oil pushed back above $100 a barrel, with Brent near $111 and WTI close to $108.
The move followed fresh comments from President Trump that "the Clock is Ticking" for Iran, a drone attack on the UAE's Barakah nuclear plant over the weekend, and the continued closure of the Strait of Hormuz, a chokepoint that normally carries about 20% of the world's oil. The Energy Select Sector SPDR Fund (XLE) gained roughly 2.4%, with Exxon, Chevron and ConocoPhillips leading.
Supply data added to the squeeze: U.S. crude inventories fell 4.3 million barrels in early May, dropping below the five-year average, while natural gas futures jumped. The risk for investors remained symmetrical as any de-escalation could reverse the move just as quickly.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.
Among others, the following stocks were impacted:
- Oilfield Services company Transocean (NYSE: RIG) jumped 6.7%. Is now the time to buy Transocean? Access our full analysis report here, it’s free.
- Oilfield Services company Nabors Industries (NYSE: NBR) jumped 4.9%. Is now the time to buy Nabors Industries? Access our full analysis report here, it’s free.
- Oilfield Services company Valaris (NYSE: VAL) jumped 6.6%. Is now the time to buy Valaris? Access our full analysis report here, it’s free.
Zooming In On Transocean (RIG)
Transocean’s shares are extremely volatile and have had 32 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 biggest move we wrote about over the last year was about 1 month ago when the stock dropped 6.6% after renewed hopes for a U.S.-Iran ceasefire triggered a massive "relief rally" in broader markets, prompting investors to rotate out of energy hedges.
As geopolitical risk premiums evaporated, crude oil prices tumbled, with Brent crude sliding over 4% toward $95, dragging down major integrated oil firms and domestic explorers.
Selling pressure intensified following a bearish monthly report from the International Energy Agency (IEA), which forecasted the first annual contraction in global oil demand since the 2020 pandemic. This combination of cooling diplomatic tensions and a worsening demand profile forced a sharp correction in the energy sector.
Transocean is up 78.9% since the beginning of the year, and at $7.59 per share, has set a new 52-week high. Investors who bought $1,000 worth of Transocean’s shares 5 years ago would now be looking at an investment worth $1,882.
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