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Hormuz attacks push up tanker freight and war-risk insurance costs, steering buyers away from crude shipped out of the Gulf. US pipeline operators, safe from shipping disruption, could gain volume and pricing power. Investors are chasing oil producers with WTI at $100, while fee-based pipeline firms like Williams, Targa and ONEOK draw less attention.
Source: Investing.com ↗
Oil producers have rallied with WTI at $100.05, up 9.6% in a week. That move is crowded and could reverse if tensions ease. Disruption at Hormuz also raises the cost of moving crude by sea. Lloyd's of London war-risk zones trigger automatic insurance increases for tankers in the Gulf. Freight costs per barrel for Gulf cargoes climb as well. That makes US Gulf Coast and Permian Basin crude, moved by pipeline, cheaper to land for Atlantic Basin buyers. Pipeline operators earn fees under take-or-pay contracts, where customers pay for capacity whether or not they use it. Higher prices help them little. They gain from more volume as producers pump more and foreign buyers seek US barrels. Investors lump them in with oil producers, missing that they earn on volume more than price.
Investors are piling into oil producers and oil majors with WTI at $100, betting on a lasting supply disruption and higher prices. Pipeline companies are seen as dull, rate-sensitive income stocks that lag when oil prices swing.
Why that may be wrong
Investors lump all energy stocks together when oil rallies. But pipeline operators earn fees on volume, while oil producers earn on price. When oil falls as tensions ease, producers will give back gains sharply. Pipeline volumes stay high, because Permian producers don't cut output right away when prices dip from $100. That timing difference helps pipelines on the way up, through more volume, and on the way down, through steady flows.
A fast easing of tensions, such as a ceasefire or a deal that reopens Hormuz within days, would erase the oil price premium. Buyers would have less reason to seek US barrels, and the extra pipeline volume would not come. Watch for WTI falling back below $90 within a week of publication, a sign that traders no longer expect a supply disruption at all.
Energy investors may already understand Hormuz risk well, and pipeline stocks have had time to adjust. If the case were obvious, it would already be in prices. The rise in US pipeline volumes is also uncertain. Permian producers are largely hedged on output schedules and won't sharply raise flows on a brief price spike. And if 10-year yields, now 4.97% and up 4.5% in a week, keep climbing, pipeline stocks, which trade like income investments, could lose more from rates than they gain from volume. A 10-year yield above 5.25% within the next two weeks would show that rates matter more than volume for these stocks.
The 1987-1988 Tanker War of the Iran-Iraq conflict is the closest parallel. Lloyd's war-risk premiums for Gulf tankers rose steeply, and the US Navy escorted reflagged tankers under Operation Earnest Will. More recently, the 2019 drone attack on Saudi Aramco's Abqaiq and Khurais sites sent WTI up 15% in a day. US pipeline companies such as Enterprise Products and Magellan Midstream did better than oil producers over the next month, and pipelines avoided most of the producers' losses when the war premium faded.
Attacks at Hormuz and in Saudi Arabia push WTI above $100, and investors pile into energy stocks. War-risk insurance premiums jump for tankers crossing the Gulf.
Seaborne crude freight costs rise sharply for tankers that must pass through Hormuz. That makes US Gulf Coast crude delivered by pipeline cheaper to land for Atlantic Basin refiners. US Permian producers pump more to capture the higher price.
US pipeline operators earn take-or-pay fees on extra volume without oil price risk. This holds most for Permian gathering systems and Gulf Coast plants that separate natural gas liquids. Their steady payouts could earn higher valuations as cash flows become clearer. When the war premium fades and producers fall, Permian output and pipeline volumes hold up, leaving pipelines on firmer ground than producers.
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