Energy Stocks Rise as U.S. Sanctions Hit Russian Oil

Wall Street continues to be confused about how to respond to tensions in Ukraine, growing corporate earnings, and weakness in housing. It's a mixed bag overall, and Mondays tend to be slow on market-moving news, another reason we're seeing a directionless market today.

The Dow Jones Industrial Average (DJINDICES: ^DJI  ) has been up and down all day, and at 3:30 p.m. EDT was up 0.64% on mixed trading. One part of the market that is doing well is Big Energy.

Energy could emerge a winner
ExxonMobil (NYSE: XOM  ) and Chevron (NYSE: CVX  ) have respectively risen 0.8% and 1.5% today as oil climbed to nearly $101 per barrel. The big news today was U.S. sanctions on more Russian leaders, including Igor Sechin, CEO of state-owned oil company Rosneft, as Washington tries to head off Moscow's desire to take any more land from Ukraine.

Offshore drilling has become more popular for oil companies, but it also raises costs, pinching margins on exploration. Source: ExxonMobil.

Rosneft has a joint venture with ExxonMobil that could invest $500 billion in Russia's energy reserves in the Arctic and Black Sea (where Crimea, the region of Ukraine recently annexed by Russia is located). Rosneft also has interest in ExxonMobil fields in the U.S. and offshore in the Gulf of Mexico.  

The reason today's sanctions are so important for both ExxonMobil and Chevron over the long term has to do with the global supply and demand of energy. Europe gets more than one-third of its oil and over a quarter of its natural gas from Russia, most of which passes through Ukraine. As tensions increase, energy becomes a major economic negotiating tool both sides can use; U.S. companies are caught in the middle, for better or worse.

Europe could reduce imports of Russian oil, which would increase demand for oil from other countries, likely raising prices. Sanctions could also hit Russian-owned assets in the U.S., including the Gulf of Mexico, impacting ExxonMobil and the overall oil and gas supply.

If sanctions continue and potential military conflict stays on the table for Russia and Ukraine, I think we'll see oil prices rise. For Big Oil, that's a positive to earnings. Energy majors have seen lower returns on upstream exploration in recent years, as it's more costly to build big projects. Returns haven't kept pace while oil prices have been flat, but this could change those fortunes.

In the short term, the conflict is actually a positive for ExxonMobil and Chevron, even with ExxonMobil's investments in Russia. The country is a huge energy exporter; any sort of sanctions on that oil and gas would have ripple effects, so the conflict is worth watching for energy investors.

3 stock picks to ride America's energy bonanza
While Russian energy is in question today, record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a look at three energy companies using a small IRS "loophole" to help line investor pockets. Learn this strategy, and the energy companies taking advantage, in our special report "The IRS Is Daring You To Make This Energy Investment." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2933426, ~/Articles/ArticleHandler.aspx, 8/30/2015 6:57:26 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Travis Hoium

Travis Hoium has been writing for since July 2010 and covers the solar industry, renewable energy, and gaming stocks among other things.

Today's Market

updated 1 day ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 4:55 PM
^DJI $16643.01 Down -11.76 -0.07%
CVX $80.43 Up +2.79 +3.59%
Chevron CAPS Rating: ****
XOM $75.07 Up +0.22 +0.29%
ExxonMobil Corp CAPS Rating: ****