In February, the U.S. and Israel launched an attack on Iran. That sent WTI crude prices rising to the $90 - $112.95 range. But after the U.S. and Iran agreed on a Memorandum of Understanding, WTI crude prices fell below $70.
The MOU did not last. The war escalated again, lifting energy prices higher. More worrisome was the increase in diesel fuel prices. Transport trucks require diesel fuel to haul agricultural and other goods. Customers could substitute truck deliveries with rail deliveries. However, investors are not bidding shares of Canadian Pacific Kansas City (CP) higher.
CP’s peers like CSX Corp. (CSX), Union Pacific (UNP), and Norfolk Southern (NSC) are pulling back after a strong YTD performance. The market is bracing for an economic slowdown caused by higher fuel prices.
The Houthis seized control of Yemen’s entire Red Sea coastline in September. That put greater importance on the U.S. to assist ships in traversing the Strait of Hormuz. But when the U.S. did not help Saudi Arabia by providing air support, it implied that any de-escalation in the Middle East is unlikely.
Military stocks like Lockheed Martin (LMT), RTX (RTX), and Northrop Grumman (NOC) extended their downtrend that began in August. Markets are likely pricing in the U.S. Army to limit additional counter-attacks in the region.
An oil crisis is likely brewing.
Oil prices are not likely to fall before the midterms. The Iranian regime wants to keep gas prices high to lower the chances of the Republicans winning seats. Expect energy firms like ExxonMobil (XOM) and ConocoPhillips (COP) to revisit their stock highs from earlier this year.
