Oil-Service Shares Surge After U.S. Strike Kills Iran General

Schlumberger, Halliburton, Transocean and ConocoPhillips see their stocks climb following the killing of Maj. Gen. Qassim Soleimani.

Shares of oilfield service companies were climbing Friday following a U.S. drone attack at Baghdad International Airport that killed Iran's top security and intelligence commander.

Companies such as Schlumberger (SLB) - Get Report, Halliburton (HAL) - Get Report, Transocean (RIG) - Get Report, and ConocoPhillips (COP) - Get Report all saw their stocks climb about 2% to 3% on word of the killing of Maj. Gen. Qassim Suleimani.

Soleimani, leader of the Quds Force of the Islamic Revolutionary Guards Corps, was killed along with several officials from Iraqi militias when an American MQ-9 Reaper drone fired missiles into a convoy that was leaving the airport, media reports say.

Oil prices surged on news of the attack. Brent crude was up nearly 4% to $68.80 a barrel higher, while West Texas Intermediate was up 3.7% to $63.43 a barrel.

The U.S. Defense Department said in a statement that Soleimani "was actively developing plans to attack American diplomats and service members in Iraq and throughout the region."

"General Soleimani and his Quds Force were responsible for the deaths of hundreds of American and coalition service members and the wounding of thousands more," the statement said. 

"He had orchestrated attacks on coalition bases in Iraq over the last several months --including the attack on December 27th -- culminating in the death and wounding of additional American and Iraqui personnel."

The Pentagon also said Soleimani approved the recent attacks on the U.S. Embassy in Baghdad.

"It's hard to overstate the geopolitical importance of Friday's assassination of Qassim Soleimani, architect of Iran's external military activity for more than 20 years and perhaps the most powerful man in the country after the supreme leader," said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

"Iran right now is reeling from the assassination, but the leadership is dominated by hardliners and the question is how, not whether, they will respond," he continued. "For markets, the key issue is the impact of the Iranian response on oil prices."

Shepherdson said higher oil prices represent a tax on oil consumers and a windfall for producers.

"The U.S., however, is both a huge oil producer and a consumer," he said. "Domestic production runs at almost 13 million barrels per day, with consumption at 21 million barrels per day. 

"That would seem to suggest that the net effect of higher prices on the U.S. would be to depress economic growth, but recent experience points in the opposite direction, because oil sector capital expenditure, in the era of shale, is acutely sensitive to prices, even in the short term."

Stewart Glickman, energy analyst at CFRA Research, noted "it does seem like memories are short here."

"It was just in September that Iran launched an attack on Saudi Arabia’s crude processing facilities and knocked out almost 6 million barrels per day of capacity. WTI surged 10%+ in response, but a month later it was a non-event, because (1) Saudi Aramco did a great job fixing the damage (faster than most expected), and (2) it did not lead to a wider conflict between Iran and Saudi."

To be fair, Glickman said, "this killing of an Iranian general raises the risk of a reprisal, and possibly escalation in the Middle East."

"But it does not change the fact that U.S. producers continue to grow crude oil production even as spending falls," he said, "and supply growth from other non-OPEC sources (like Brazil and Guyana) means that a possible crude oil shortage is a lesser threat today than during prior escalations in the Middle East.”