Shell and BP shares: could the FTSE 100 oil majors see Brent rise to $100?

The FTSE 100 fell sharply last week, slipping from 7,625 points on 17 October to 7,367 points today. Overall, the UK’s premier index is down circa 2.5% year-to-date, dragged down by wider macroeconomic concerns of a potential global slowdown, and more recently, fears that the Israel-Hamas war could escalate into regional conflict.

Of course, the war is already seeing Brent Crude rise; the international oil price benchmark is now trading at circa $92/barrel. But if Iran enters the war, JP Morgan analysts argue that the ‘the closure of the Strait of Hormuz —the world's busiest oil-shipping channel— it would shut down the region's oil trade, supercharging oil prices.’

Of course, the bank also noted that ‘while Iran has threatened over the years to block the strait, it had never followed through.’ For context, circa 20% of the world’s total oil consumption passes through the Strait each day. Closure for any length of time could see inflation resurge and global economies wobble.

But this fear, and the subsequent oil price rise, has been positive for the FTSE 100 oil majors, BP and Shell. Indeed, Shell hit a record market capitalisation last week, though has slipped back slightly.

Israel-Hamas war updates

Over the past 24 hours, the Hamas-run healthy ministry in Gaza has reported that 436 people have been killed by Israeli air strikes. This brings the total number of Palestinian deaths to 5,087 since 7 October — with a further 15,273 people wounded.

Israel has advised it is targeting Hamas infrastructure, including tunnels, with 320 targets hit over the past day. It’s also launched ground raids into the Gaza Strip, with IDF spokesman Daniel Hagari advising that ‘during the night there were raids by tank and infantry forces. These raids are raids that kill squads of terrorists who are preparing for our next stage in the war. These are raids that go deep.’

An additional consideration of these raids is to garner information about the locations of the 222 hostages held by Hamas in Gaza (including some foreign nationals). For context, more than 1,400 Israelis were killed when Hamas attacked both civilians and soldiers in Israel at the start of the conflict.

The New York Times has reported that the US has advised Israel to delay its full ground invasion of Gaza to negotiate the release of these hostages and also allow more aid to enter the Strip. According to Reuters, a third convoy of trucks recently entered Gaza through the Ragah crossing in Egypt — though the amount of aid being delivered is still far short of what the UN considers is needed.

And arguably, the ground invasion could be the catalyst that draws other actors into a wider war.

BP and Shell shares

The FTSE 100 oil majors are already benefitting from a rising oil price that is reacting to fears of a regional war.

But these fears over oil movement restrictions are nothing new — in early 2012, Iran threatened to close the Strait of Hormuz in response to international sanctions against its nuclear program. At the time, the US deployed naval forces to ensure the safe passage of ships, stating it would not tolerate a closure of the Strait.

Other than the wartime developments, it’s worth noting that Chevron has just agreed to buy Hess for $171 per share in an all-stock deal. Given that BP still lacks a full-time CEO after Looney’s unceremonious exit, its contentious green investments focus, and relative underperformance — it could remain a buyout target.

Meanwhile, Shell shares could see another record high this week should Brent rise to $100 and take the FTSE 100 major with it. However, this will depend on whether international efforts to de-escalate the conflict bear fruit.