The BFD about LNG

Oil prices have popped for a second day in a row as investors gauge the fallout from a slew of oil supply chains suddenly being thrust into a warzone. But today, all eyes are on LNG (liquefied natural gas).

While Iran’s closure of the Strait of Hormuz grabbed headlines, Qatar, one of the largest LNG producers in the world, also paused production yesterday—triggering a 19% reduction in global LNG supply in one fell swoop, according to Goldman Sachs.

The fallout

Obviously, the disruption of LNG supply will directly spike electricity prices across the world. The energy crisis in Europe could be particularly devastating, given 25% of Europe’s total gas supply is LNG. Across the pond, however, the US is in a far better position, since it’s the largest exporter of natural gas globally.

As investors are still trying to figure out how the dust will settle on all this LNG turmoil, some under-the-radar stocks are surging. One is Venture Global, the Virginia-based natural gas shipper, which has surged over 23% in the last five days. Then there’s Cheniere Energy, the largest producer and exporter of LNG in the US, which jumped 11.43% over the last week.

Buy the dip, not the pop: While analysts are still bullish on these stocks, energy stocks were already among the best performing and most overvalued this year before the war broke out, according to Morgan Stanley equity analyst Devin McDermott. With how much these names have popped today, there could be some pullback as investors take profits.

The bottom line? The volatility won’t be slowing down anytime soon. “While we think history is a helpful guide in how this might ultimately play out, there is still a lot of uncertainty around how the regional conflict will progress over the coming days and weeks,” warned McDermott.—LB