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The geopolitical situation in the Middle East has had a strong impact on international financial markets, with oil and natural gas prices rising sharply, stock market volatility increasing, and investment reallocation between different market sectors.
Oil prices: Is an inflationary shock inevitable? (For more information, please click on the image below)
In such a geopolitical context, positive shifts in favor of the energy and defense sectors are usually observed. Airlines, in contrast, are under pressure.
As part of a strategy to hedge the risk of a stock index correction, it can be interesting to look for leverage through industry stocks that “win” from current events. The energy sector naturally stands out, especially companies that benefit directly from the short-term rise in oil prices. Companies that sell shale oil, which is the most expensive to extract, are most sensitive to rising oil prices. However, caution must be exercised as the share prices of these companies react quickly to short-term spikes but could also fall if there is a geopolitical breakout. Such is the case with Vista Energy.
When oil prices rise, the following technical and fundamental factors dominate:
• Can drill quickly
• If price is high, production can be increased
• Significant increase in profit margins
• Significant increase in cash flow
• A company’s market capitalization typically rises but can fall rapidly in times of geopolitical calm
Vista Energy is an independent oil company founded in 2017 by former YPF director Miguel Galluccio. The company’s legal headquarters are in Mexico and it is listed on the New York Stock Exchange (NYSE: VIST), while the majority of its activities are concentrated in Argentina’s Vaca Muerta formation, one of the world’s largest unconventional hydrocarbon deposits. Vista has quickly become one of the country’s leading independent oil producers thanks to its development of shale oil extracted through horizontal drilling and hydraulic fracturing.
Vista’s business model makes the company highly sensitive to short-term oil price fluctuations. Like most exploration and production companies, the company sells oil at international market prices, which are typically tied to benchmarks such as Brent or West Texas Intermediate. However, once a well is on production, a large portion of operating costs (drilling, infrastructure, and operations) remain relatively stable. When the price per barrel increases, revenue per barrel increases immediately with minimal changes in costs, resulting in a disproportionate increase in profits and cash flow. This high sensitivity to oil prices explains why Vista Energy’s financial results and share price react quickly to oil market fluctuations.
However, the opposite is also true, as the trend could quickly reverse if oil prices fall again.
From the technical analysis of the financial market, the basic trend is upward, and the stock recently issued a technical continuation signal after breaking through the resistance level of $58 to $62. The chart below shows the monthly, weekly, and daily Japanese candlesticks for Vista Energy stock.
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