Market Attractiveness - Saudi Arabia's stock market is becoming more appealing to foreign investors [1] - The attractiveness is due to rock-bottom valuations [1] - Bets that the oil price will not decrease significantly further contribute to the appeal [1]

Core Viewpoint - The current oil pricing environment, with West Texas Intermediate (WTI) trading around $64 per barrel, is favorable for ConocoPhillips (COP) and its upstream operations, particularly in the United States [1][3]. Group 1: Company Operations - ConocoPhillips has low-cost resources both internationally and domestically, with a strong focus on the Lower 48 states, which include major shale plays like the Permian Basin, Eagle Ford, and Bakken [2]. - The acquisition of Marathon Oil has enhanced ConocoPhillips' upstream presence in the Lower 48, showcasing the resilience of its business model [2]. Group 2: Financial Performance - The ongoing pricing environment, with oil prices significantly above break-even levels, is beneficial for ConocoPhillips' overall business and positively impacts its bottom line [3][7]. - ConocoPhillips shares have experienced an 11.6% decline over the past year, which is less severe than the 17.7% decline of the broader industry composite [6]. - The company trades at an enterprise value to EBITDA (EV/EBITDA) ratio of 5.49X, which is below the industry average of 11.10X, indicating potential undervaluation [7][8]. Group 3: Earnings Estimates - The Zacks Consensus Estimate for ConocoPhillips' 2025 earnings has been revised upward in the past week, reflecting positive sentiment regarding the company's future performance [10].

Geopolitics and Sanctions - The report suggests that current sanctions under President Biden were designed to help Putin sell oil [1] - President Biden allegedly asked India to import Russian oil to prevent oil prices from staying at $127 per barrel after Russia's invasion of Ukraine [2] - The US attempted to limit Russia's revenue through a price cap mechanism, enabling Russian oil to flow to India and China to keep US gasoline prices low [3][4] - President Trump has threatened to sanction India if they continue importing Russian oil [4] - The best-case scenario involves a ceasefire between Putin and Zelensky, potentially leading to the removal of European sanctions on Russia [7][8] - Europe has heavy sanctions, and new European sanctions are coming on refined products from Russian crude [8] Oil Market Dynamics - Shale oil production is reportedly declining [5] - The market is skeptical about disruption risk and sanctions, and is priced for de-escalation [9] - If the meeting fails and sanctions are implemented, the president will need to calibrate them to coincide with a loosening in global oil fundamentals to avoid sending oil prices up [5] - If Russian barrels are lost and crude oil prices rise above $100 again, shale oil cannot simply pump more to compensate [4]

Government Revenue - Nigeria collected more than half of its targeted annual tax revenue in the first six months [1] Economic Factors - Oil price dropped below budget projections [1]

Oil Price & Market Dynamics - Oil prices experienced a significant drop, with WTI showing a slight upside in early Asian trading sessions following a double-digit percentage slump over the past two days [1][3] - US crude stockpiles showed another drop, contributing to a roughly 5% decline in New York-traded crude prices over two days [4] - President Trump signaled a desire to maintain Iranian oil flow, a shift from previous strategies of restricting Iranian energy exports [2] Geopolitical Factors & Risk - A fragile ceasefire brokered by President Trump between Israel and Iran reduces the risk premium on oil supplies, but the situation remains unstable [4][5][7] - The US essentially gave China, Iran's largest crude customer, the go-ahead to continue purchasing Iranian oil, potentially as an olive branch amid trade uncertainties [5] - China's approach to importing Iranian oil remains uncertain given potential sanctions [6] Iran's Situation & Strategy - Iran's proxy network, including Hezbollah, has been significantly weakened but retains some capacity to cause damage, with estimates suggesting Hezbollah still possesses approximately 20% of its missile capacity [10][11] - Iran's primary focus is regime survival, potentially opening a window for nuclear diplomacy and negotiation [13][14] - The Iranian regime is interested in maintaining its proxy network, no matter how weak, and will review its military deterrence strategy [12] Potential for Future Conflict - Israel, particularly the Prime Minister, remains concerned about Iran's ability to reconstitute its nuclear fuel capacity, potentially hindering long-term peace [8] - The question remains whether Israel will halt military action against Iran, and whether the US President will pressure the Israeli Prime Minister to do so [15][16]

Oil Market Dynamics - The market had priced in a $15-20 per barrel premium due to Israel-Iran tensions, which is now being eliminated as the worst of the turmoil appears to be over [2] - Prior to the conflict, debates centered on tariffs potentially driving recession and leading to $50 oil price predictions [3] - Better-than-expected oil demand data and underperforming OPEC production quotas were observed [4] - Shale oil drilling had decreased, leading to questions about potential rollover [4] - Demand is hanging in at around 1 million barrels per day of growth [6] Factors Influencing Oil Prices - Transportation costs, particularly shipping, have surged due to Middle East risk premiums [5] - The potential for shale oil growth resumption if oil prices remain above $70 is a key variable [6] - Underlying oil fundamentals should be the primary focus, considering past disruptions' varied impacts [6][7] Geopolitical Considerations - The Israel-Iran conflict has not demonstrated Iran's strong military capabilities [8] - Most of Iran's oil sales go to China, making the closure of the Strait of Hormuz unlikely [8][9] - China's role is significant in preventing actions like closing the Strait of Hormuz [9]

Inflation & Tariffs - The market is underestimating the potential impact of oil prices, which could rival or even exceed the uncertainty surrounding tariffs [3][4] - Tariffs' inflationary impact is still anticipated, though not yet significantly observed [1][8] - The effects of tariff increases on prices are largely unseen to date [8] Oil Market - Geopolitical strife in the Middle East introduces significant uncertainty regarding future oil prices [3] - A rapid surge in oil prices, potentially exceeding $100 per barrel due to events like the closure of the Straits of Hormuz, could shock industrial economies [5] Monetary Policy - Current Federal Reserve policy is considered slightly tight, with a real interest rate a little high [6] - The Federal Reserve can afford to wait and observe the development of tariff and oil uncertainties [7] Housing Market - The housing sector, particularly new residential construction spending, constitutes approximately 4% of GDP and is closely monitored by the Federal Reserve due to its interest rate sensitivity [9][10]

Geopolitical Risks & Market Reaction - The market is failing to fully appreciate the potential gravity of the current geopolitical moment, particularly concerning Middle East conflicts [2] - The perceived importance of Middle East conflict and its relationship to oil prices has declined over time, potentially leading to underestimation of current risks [2] - US shale gas supply has reduced the sensitivity of oil prices to Middle Eastern geopolitical risks, but the current situation is different [4] Potential Escalation Scenarios - The US potentially getting involved in a major geopolitical risk event, such as a conflict with China over Taiwan or an attack on Iran's nuclear facilities, represents a significant escalation [5] - The possibility of a "controlled explosion" potentially happening in Iran indicates a failure of markets to understand the risk trajectory [6] - Recent exchanges of force between Israel and Iran, including Israel's claimed aerial superiority, represent a strong statement and escalation [7] Israel-Iran Conflict Dynamics - Israel's Operation Rising Lion, involving targeted assassinations and undermining Iran's nuclear capacity, is an advanced operation [8] - The success of Operation Rising Lion on Israeli terms would require undermining Iran's nuclear capacity [8] - Achieving the desired outcome in the conflict between Israel and Iran may require US military assistance, making Trump's decisions a key variable [9]

Oil Price Scenarios - In an extreme scenario involving a complete disruption to Iranian oil supply and closure of the Strait of Hormuz, oil prices could temporarily rise above $200 per barrel [2] - The industry's base case suggests a risk premium pushing Brent crude prices into the low $80s [4] - A scenario involving Israeli attacks on Iranian energy infrastructure could push prices towards $100, reflecting further risk premium due to actual supply disruptions [5] Geopolitical Risk and Market Dynamics - The market's direction in the next two weeks depends on whether there is de-escalation, potentially with US diplomatic involvement, or escalation involving attacks on Iranian energy infrastructure [5] - A de-escalation scenario could lead to a decay of the risk premium over time, similar to other geopolitical risk events where initial spikes subside without significant supply disruptions [5][6] - The sustainability of extreme oil price increases is questionable, even if they occur temporarily [2][3]