Financial markets have been in turmoil since President Joe Biden confirmed that Russia invaded Ukraine. Indexes have plunged from Russia to the United States and throughout the European Union (EU). This type of economic action has global consequences, even as world leaders impose severe sanctions. We are seeing it already as oil and gas prices rise, sending oil stocks up. Recent data from the American Automobile Association (AAA) indicates that gasoline prices in the U.S. could hit $4 per gallon soon.
Many U.S. companies have seen shares fall today, but some of the biggest names among oil stocks are actually on the rise. For example, Exxon Mobil (NYSE:XOM) is up 2.5% for the day while Chevron’s (NYSE:CVX) gains have surpassed 3.5%. Additionally, Shell (NYSE:SHEL) has risen by more than 4% and BP (NYSE:BP) has shot up by 5%-plus. All companies appear to still be climbing upwards, even if growth has slowed for some.
What’s Happening with Oil Stocks
With oil prices rising as they are, it’s expected that oil stocks will move accordingly. It is understandable, though, that consumer fears regarding oil prices would also be rising. Prior to the global conflict breaking out, oil prices were already climbing due to inflationary trends. In late November, Biden made the decision to tap into the Strategic Petroleum Reserve in an attempt to curb rising prices.
In a recent statement, President Biden emphasized that his administration was planning to combat any oil supply-chain disruptions:
“We’re executing a plan in coordination with major oil-producing consumers and producers toward a collective investment to secure stability and global energy supplies.”
However, as Oilprice.com notes, these looming supply-chain problems will make it even harder to tame the rising prices. The U.S. has remained committed to its oil industry sanctions imposed on Venezuela, but in doing so has furthered its dependence on Russia. Sanctioning one of the world’s leading oil exporters would mean further complications for a market that’s already struggling. As Reuters reports, it’s for this reason that Biden is not likely to target Russia’s oil industry through sanctions.
What It Means
The way it looks from here, all short-term outcomes point to an economic landscape with rising oil prices. Biden opting against sanctioning Russia’s oil industry will keep prices from rising as high as they might have otherwise. However, that does not mean we will see them fall to where they were before inflation set in. Before the Russia-Ukraine conflict began, inflation had reached a 40-year high.
Oil prices are set to keep rising for the foreseeable future and, as they do, oil stocks will follow suit. Investors can take comfort in the fact that, while much remains uncertain, oil prices can be expected to continue moving upward. It will take a dramatic policy shift to force them down. That isn’t likely to happen until firing overseas has ceased. All told, oil stocks remain a safe buy, even in times of economic uncertainty.
On the date of publication, Samuel O’Brient did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
