Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

The Attack on the Saudi Oil Infrastructure and the Future of Oil Prices

By Gary Barnett - Updated Oct 7, 2019 at 3:32PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Recent tensions in the Middle East -- especially concerning Iran -- are not over, and continued turmoil will lead to higher oil prices.

After an event that included attacks on two separate Aramco oil facilities in Saudi Arabia earlier this month, oil prices saw an immediate spike. While prices have softened substantially since the attacks, the price of crude is still higher than before the attacks. The market's immediate and strong reaction to a possible decrease in supply highlights the fragile nature evident in the oil markets and pricing.

Any additional tension or uncertainty in the region could push prices much higher in the future. This scenario would benefit U.S.-based Parsley Energy ( PE ) and, given the strong push against Iran by many American consumers and policy experts, those interested in investing wisely should pay attention.

A fracking drilling rig

Image Source: Getty Images

A promising frontier

Parsley Energy is an independent oil and natural gas company located in the very rich Permian Basin in Texas and New Mexico, and was founded in 2008. This company's revenue for the second quarter ending June 30, 2019 was $0.499B, which was a 6.57% increase year-over-year. For the twelve months ending June 30, 2019, revenue was $1.892B, a 33.9% increase year-over-year. Parsley's profit margin as of June 30, 2019 was 13.69%. Also, according to Parsley's second quarter results, business is booming. "Net oil production increased 10% quarter-over-quarter and 28% year-over-year to 86.6MBo per day. Total net production averaged 140.1 BBoe per day," a recent press release indicates. These improvements are noteworthy because continued higher production indicates stronger future growth.

Parsley's management is also intent on growing free cash flow, an important factor for any investor to consider. The company's free cash flow discipline is admirable, and assuming oil prices remain fairly stable or go higher in the future, Parsley's financials will only improve due to increased profit potential. In light of this objective, Parsley in August announced the initiation of a $0.03 quarterly dividend to be paid to investors beginning this month. Both of these factors should encourage investor optimism in both the financial health and growth opportunities at Parsley. 

Uncertainty still looms

Still, many factors influence the pricing of oil. Few have to do with the natural occurrence of supply and demand or free markets. Governments, states, and even corporations, can interfere in the markets, mostly on the basis of geopolitical interest and money. It is a very complicated matter, and these unknown factors certainly play an important role in the world's oil markets. This is why it is always wise to look at the big picture, instead of just focusing on the numbers. In doing so, regardless of any personal or political conflict, one can make a better decision about personal finances and investing.

Given the increasingly uncertain geopolitical climate, volatility seems to be the rule of the day. Threats of more war in the Middle East over the Iran/Saudi conflict, trade wars, and heightening tension between Iran and its other adversaries could arise, bringing more chaos to the oil markets. Should more attacks occur, or war against Iran become a reality, supply could be threatened, and not just temporarily. In that environment, oil prices would rise substantially in my opinion, and that would certainly generate higher demand for U.S.-based Parsley Energy that is already positioned for long-term growth. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Parsley Energy, Inc. Stock Quote
Parsley Energy, Inc.
PE

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
640%
 
S&P 500 Returns
139%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/04/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.