Energy Musings - August 30, 2025
Energy stocks posted a solid performance during August, which placed the sector in third place among the 11 sectors. Energy's year-to-date performance continues to improve.
August Proved Surprisingly Good For Energy
The Standard & Poor’s 500 Index gained 2.03% during August, despite falling by 0.64% on Friday, the last trading day of the month. Friday’s decline to 6,460.26 followed a record close of 6,508.23 on Thursday. Year-to-date, the S&P 500 has gained 10.79%, certainly a great year. Although service inflation picked up a little, consumer spending in July increased the most in four months, reflecting a resilient economy. Investors are still betting on a Federal Reserve interest rate cut in September, but what happens after that remains unclear.
Energy gained 3.6% in August, and its ranking rose to third from fourth place for the previous two months. The sector’s gain came despite the domestic spot oil price falling by $4 a barrel to $64.80, still relatively healthy and supportive of continued high levels of activity. In fact, domestic oil production hit an all-time high.
Energy is back in the upper sector ranking.
Year-to-date, Energy has posted a 7.50% performance. That places the sector in the bottom half of the rankings, ranking seventh out of 11. The AAA noted that gasoline pump prices are the lowest they have been in the past five years as the country heads into the Labor Day Weekend. That will help Americans traveling this weekend.
The narrative about oil remains that the market is well-supplied, with a glut persisting based on the additional supply from OPEC+ members. The wildcard is the negotiations for a peace treaty in the Russia-Ukraine war. Would such a development lead to more favorable access for Russia to world oil consumers? The alternative scenario is that Russia refuses to agree to a ceasefire and peace agreement, which leads the United States to impose wider and stronger sanctions on Russia, its oil companies, and buyers, including India and China.
With little fanfare, various countries are moving to blacklist the ships in the ghost fleet that have been transporting Russian crude oil to buyers. If these moves reduce the available tankers, Russia may face greater difficulties in continuing to ship its crude oil.
Another tactic would be to allow Ukraine to use long-range U.S. missiles to attack Russia’s oil infrastructure – export ports and refineries. Such losses could strain Russia’s export capacity, reducing the income that finances the war. Destroying refining capacity would pinch the Russian economy and its consumers with fuel shortages and soaring energy prices. Could that create sufficient unrest in the country to threaten the Putin regime? That is a tough scenario given the authoritarian nature of the Putin government.
The current oil price is in the middle of its new price range.
According to a Wall Street Journal article, concerns over the oil glut are depressing financial analysts' oil price forecasts for the fourth quarter. The paper’s survey of Wall Street oil analysts reported that Brent crude prices are expected to average $63.57 per barrel in the fourth quarter, while domestic crude oil prices are expected to average $60.30 per barrel. These estimates are down from last month’s survey projections of $64.13 and $61.11, respectively.
On Friday, Brent and WTI futures prices closed at $67.48 and $64.01, respectively. And drilling activity fell for the week, down two to 536, with oil rigs up one to 412, and gas rigs falling by two to 119. Slowing drilling activity reflects the more conservative attitude oil and gas producers have towards future oil and gas prices and their need to protect their current profit margins. This could help support oil prices later in the year.
As our chart above of daily spot oil prices shows, since the price spike in June, a pattern is developing that resembles that of the second half of 2024. Are we headed for oil prices below $60 per barrel in early 2026, or will conservative spending and weaker oilfield activity slow production and support prices? Stay tuned.