Riskiest Oil Stocks Soar After U.S. Assassinates Iranian General - Barron's

Risky oil stocks are flying as oil prices spike amid renewed Middle East tensions. Getty Images

The market’s riskiest oil stocks are getting a boost as oil prices spike following the U.S. assassination of Iranian general Qassem Soleimani.

WTI crude oil futu res, the U.S. benchmark, have gained 4% to $63.64 a barrel at 8:18 a.m. today, while Brent crude, the European benchmark, have risen 4,1% to $69 a barrel. While the Dow Jones Industrial Average looks set to drop more than 200 points at the open, the Energy Select Sector SPDR ETF (XLE) is up 1.1% to $61.23 in premarket trading.

That’s no surprise given that energy stocks make their money by selling or processing oil. And it’s the riskiest oil stocks that are up the most Friday morning. While Exxon Mobil (XOM) has advanced just 0.9% to $71.55, the oil explorers with the highest leverage ratios are have gained far more—some in the double digits.

A look at the S&P 1500’s best performing stocks in premarket trading is a who’s who of leveraged oil explorers. Whiting Petroleum (WLL), with a leverage ratio of about 2.5 times, according to SunTrust research released on Dec. 9, has gained 13% to $8.15, while Chesapeake Energy (CHK), with a leverage ration of 4.7 times, is up 8.8%. Other big movers include SM Energy (SM), Ring Energy (RING) and Matador Resources (MTDR).

There’s basic math behind some of those advances. Whiting’s leverage ratio drops to 2.1 times with oil at $65 dollars, while Chesapeake’s falls to 4.2 times, according to SunTrust.

SunTrust’s Neal Dingmann isn’t sure that oil can stay above $60 a barrel—it didn’t following the attack on Saudi Arabia—but believes it will stay above $55. “As such, most E&Ps are likely to benefit from the higher prices though those with most exposure (least hedged) to oil should benefit the most,” he writes. “Further, we believe the latest geopolitical events could cause investors to take more risk causing them to invest even in those companies with more leverage.”

He expects Centennial Resource (CDEV), Whiting, PDC Energy (PDC), Noble Energy (NBL), Continental (CLR), and Apache (APA) to outperform during today’s oil spike.

Write to Ben Levisohn at Ben.Levisohn@barrons.com

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