Energy Musings - November 29, 2025
Energy stocks performed remarkably better than one would have thought given WTI oil prices falling below $60 a barrel and the narrative about a glut in 2026 growing. What does the market know?
Energy Stocks Defy Analyst Negative Narrative
November’s average oil price was barely above $60 a barrel ($60.01), and it was down $0.83 from October’s average. This is somewhat surprising given the growing negative outlook for 2026 and the media’s heightened attention to oil prices whenever they fall below $60. Despite the negative industry backdrop, the energy sector of the Standard & Poor’s 500 Index posted a 4% monthly gain, placing it fifth among the index’s 11 sectors. Energy’s performance was well above the 0.25% gain for the month posted by the S&P 500.
Amazingly, only three sectors posted losses for November. The Industrials sector declined 0.85%, and Consumer Discretionary fell 2.39%. What weighed on the index’s performance in November was the Information Technology sector’s 4.29% decline.
What has been driving the stock market up all year is suddenly in a downdraft marked by concern over technology stock valuations, the amount of money they are committing to building new data centers, potential plateauing of Artificial Intelligence use, and the debt being assumed in the face of shrinking free cash flows. This should not have been a problem, as almost every industry that enters a capital-spending surge sees a similar pattern.
As technology stocks decline, the massive outflow of money must find another investment home. Stock market technicians are seeing an increased investor interest in other market sectors.
Energy stocks return to rarefied territory in November.
After two months of negative performance, energy was positive in November and is now back in the upper end of sector performance. Year-to-date, energy is in seventh place, up one from its October ranking. We have more to show about the performance of energy investments in portfolios in next week’s Energy Musing.
It is noteworthy that the negative 9.5% performance in December 2024 pulled the energy sector’s latest 12-month performance to negative 1.81%, putting it in ninth place. Last December, analysts began forecasting weaker oil demand from China, and OPEC began adding oil supply, raising the specter of an oil glut. This narrative has continued throughout 2025. As we head into 2026, the narrative about lower oil prices is growing.
Oil prices have slid steadily since the first quarter of 2024.
A Reuters poll of Wall Street analysts and economists sees the WTI oil price averaging $59 a barrel in 2026, down from $60.23 in the October poll. Analysts are predicting Brent oil prices to average $62.23, down from the $63.15 a barrel forecast in the Reuters October poll. One needs to consider what happens with a sub-$60 oil price.
Ryan Lance, chairman and CEO of ConocoPhillips, told Reuters that “At $60-$65 a barrel WTI oil prices, the U.S. is probably plateauish.” He is describing what happens to U.S. oil production. He also opined, “But if prices stay at $60 or go into the $50s, you probably are plateauing or slightly declining.”
Goldman Sachs said oil prices are set to drop further in 2026, citing a large supply surplus. They are predicting a $ 56-per-barrel WTI price next year. An even more bearish price forecast was issued by JPMorgan, which suggested prices could fall to $30 a barrel in 2026.
Goldman Sachs’ co-head of global commodities research, Daan Struyven, told CNNC last week that the market is likely to rebalance in 2027 as 2026 will see “the last big oil supply wave the market has to work through.”
Importantly, he mentioned the long-term changes in industry dynamics. The key dynamic is that supply growth will mostly come from OPEC, which has spare capacity and is investing in capacity expansion. However, Saudi Arabia and the United Arab Emirates remain the only OPEC members with idled export capacity, which gives them the ability to manage oil prices on the upside.
Struyven noted that there could be modest long-term supply growth from U.S. shale fields, but it would require Brent prices around $80 a barrel, which, he says, is likely by 2030. The International Energy Agency is now predicting oil demand will grow to 2050 and warns that producers need to increase capital investment to ensure the supply is available. So, if lower oil prices curtail investment in new supply, could the rebound in oil prices come sooner than analysts expect?
Remember, also, that stock market prices tend to lead industry fundamentals by six or more months. With energy stocks performing better in November than oil prices and the negative industry narrative suggests, maybe the market sees a smaller glut next year and a faster recovery in oil prices.