Energy Musings - June 2, 2026
So far in 2026, Energy has been at the top or bottom of the S&P 500 Index sector monthly performance ranking, reflecting oil price movements and technology stock optimism.
Cellar Dweller Energy Looks For A Better Future
“It was the best of times, it was the worst of times,” or so wrote Charles Dickens in the opening sentence to A Tale of Two Cities. He was describing the different worlds that London and Paris were living in at the time of the French Revolution. Energy fills that description, at least so far in 2026. May was a disastrous month for Energy, as the S&P 500 sector posted a 5.56% loss, 60% worse than its April decline.
As the chart shows, Energy was the worst-performing sector in both April and May, after being the top or second-best performer during January through March. What is interesting is that for the year-to-date period, Energy posted a 26.04% gain despite two negative months, beating Information Technology’s 23.81% gain. If you lengthen the comparison time to the latest 12 months, Energy (+42.50%) trailed Information Technology (+56.03%) but beat Telecommunications (+40.93%), making it the second-best-performing sector. The point being that Energy has enjoyed much success for investors over the past 12 months, despite the losses in April and May. It goes to show you what happens when oil prices soar and investors expect higher profits, only to pull back, dampening profit expectations.
2026 has been a tale of two energy stock markets.
Standard & Poor’s commented on the market’s performance in May:
“The rally in U.S. equities continued in May, as strong tech earnings and AI-related exuberance propelled the S&P 500® to eleven all-time closing highs, while declining oil prices and easing geopolitical concerns amplified the market’s positive sentiment. The 500 finished the month with a 5% gain.”
Not only did the S&P 500 hit record highs during May, but the Nasdaq also closed the month at a record high. The Dow Jones Industrial Average closed above 51,000 for the first time ever. Amazing that all this market exuberance occurred while a war in the Middle East was underway.
The ongoing Iranian conflict, with the resulting closure of the Strait of Hormuz, has elevated global oil prices and created significant price volatility as traders react to the latest news and speculation on a peace deal to end the conflict. The elevated and volatile oil price is clearly seen in the daily spot oil price chart for WTI.
High oil prices and their volatility are evident in this chart.
What will happen to oil prices once the conflict in Iran ends? With the reopening of Hormuz, and presumably without any tolls, the world will rush to rebuild commercial and strategic oil reserves, adding to the rebound in global petroleum consumption. Although some energy analysts say the drawdowns in oil reserves have not endangered the world’s economy, others, including the heads of some of the world’s largest oil companies, are signaling that the real oil supply crunch will soon be felt and cause a spike in oil prices. Their expectation reflects the belief that only high prices will drive demand down to levels the current industry supply can meet.
What we have been following is a plot of Brent spot oil prices since February and the commencement of the Iranian war, compared to the price history for the first half of 2022, following the Russian invasion of Ukraine. The expectation was for a short war, as observers believed Russia would quickly roll over Ukraine’s military, ending the war. We are now in year five of this war.
However, Brent prices remained elevated longer than analysts anticipated. It has been eerie how Brent prices during this war tracked the 2022 conflict closely. Maybe that history will be repeated even if the war ends soon, since global supplies have been so depleted.
Current Brent prices are tracking 2022 price levels.
The year-end futures price for WTI suggests a $75-80-per-barrel price, which will be good for oil company earnings and, presumably, company share prices. This future price level extends to 2027 and 2028, suggesting that such a high price is needed to ensure supply is available to meet future demand.
Even with the return of the technology stock rally, share valuations are becoming stretched, while Energy stock valuations remain below historical levels. Coupled with low valuations are high dividend yields, making Energy stock attractive. Therefore, Energy shares may perform well in the second half of 2026.