Energy Musings - May 1, 2026
The S&P 500's Energy sector fell to last place in April after having been the top performing sector in March. Surprisingly, this same pattern happened last year, but driven by different factors.
Good Times For Energy End Abruptly
April was a challenging month for the Energy sector of the Standard & Poor’s 500 Index. From first to last in 30 days is a heady experience, but not one that hasn’t happened to Energy before. As the chart shows, last year at this same time, Energy went from first place in March to last place in April. Is this just Déjà vu?
Last year, the average U.S. oil price declined from over $68 a barrel in March 2025 to $63 in April. Lower oil prices signaled weaker earnings for oil companies, so it was not surprising that the stocks would decline. However, this year the price action has been the reverse, going from $91 to almost $100. That should be lifting oil company earnings. But another factor was at work. Higher oil prices in recent months reflect the largest global oil market disruption ever due to the closure of the Strait of Hormuz as a result of the conflict between Iran and the U.S., with its ally Israel.
When a ceasefire was announced between the U.S. and Iran, hopes were high that the Strait would reopen to tanker traffic, restoring the flow of oil cut off to consumers worldwide. As the fight unfolded, Iran’s retaliation was to strike out at its Persian Gulf neighbors and especially their energy infrastructure. Iran initially also attacked civilian targets throughout the Middle East, but it concentrated its attacks on energy facilities, which are the lifeblood of those countries.
The most notable energy infrastructure damaged by Iran’s attacks was Qatar’s LNG terminal and liquefaction plant. That resulted in a 17% loss of Qatar’s potential output, which QatarEnergy says may take up to 5 years to repair once the war ends. The loss of such a large share of global LNG supply means countries will bid aggressively for supplies from other LNG exporters, especially the United States.
Energy goes from first to worst in 30 days.
April’s stock market performance reflected a resumption of the 2025 technology-driven conditions of recent years. Some of the gains were in anticipation of strong technology company earnings, as they capitalize on the boom in Artificial Intelligence and in data center construction.
Energy stocks bounced daily, depending on the geopolitical news surrounding the war and how oil traders reacted. Each time oil prices jumped, oil stock prices followed. Likewise, oil price drops caused the stocks to fall. Another factor impacting the Energy sector has been the comments from major oil and gas companies about the magnitude of the production volumes lost due to the closure of Hormuz. As we saw with today’s first-quarter earnings reports of Chevron and ExxonMobil, higher prices and refining margins offset the impact of lost Middle East output.
The market is wondering when the Iran war will end, and what it will mean for the reopening of the Strait. Oil industry executives are discussing the reality that it will take several months once the Strait is reopened to clear the tankers trapped and restore the oil flow that has been lost. That is why many analysts are now projecting oil prices to remain high for most of the remainder of 2026. The chart shows how the Brent oil price in 2026 is tracking its 2022 trajectory following Russia’s invasion of Ukraine.
The 2022 oil price trajectory may be a guide for 2026.
Sustained high oil prices will boost Energy earnings, but that doesn’t mean investors will be investing in the stocks. However, investors should reassess the role that energy plays in global economic growth. We find it interesting that when we consider the sector weighting of the 11 S&P 500 sectors, how little is allocated to energy, materials, and utilities. Those three sectors play an important role in economic growth, yet the stock market only assigns them a combined market weight of 7.69% today. Without them, the technology boom would come to a crashing end. We may see these three sectors gain greater importance in the stock market in the future as investors recognize their importance. Energy may be back at the top of the sector-performance pyramid before long.