Energy Equities Mixed Despite Oil’s Biggest Rally Since 2022

Crude Oil Price Swings

The commencement of the week witnessed a dramatic surge in crude oil prices, briefly breaching the $100 per barrel threshold, only to subsequently undergo a significant correction. This volatility injected considerable uncertainty into the global energy market, impacting energy stocks across various exchanges. Brent crude, the international benchmark, soared to $119 per barrel during the Asia Pacific trading session, marking its highest valuation since 2022. However, the rally proved unsustainable, with prices receding to below $90 per barrel later in the day. This rollercoaster occurred against a backdrop of prices around $78 per barrel just a week prior. The initial surge was attributed to the intensification of geopolitical friction involving the United States, Israel, and Iran, leading to a near-total blockade of the Strait of Hormuz, a critical chokepoint for global oil supplies.

The subsequent pullback in prices was fueled by reports suggesting that former President Trump believed the conflict was nearing resolution. Adding to the downward pressure, speculation arose that G7 nations were contemplating releasing up to 400 million barrels of crude oil from their strategic petroleum reserves in an attempt to moderate escalating prices. However, this plan was put on hold as G7 finance ministers deferred the decision, leaving the final determination to G7 heads of state later in the week. The potential coordinated release highlights the sensitivity of major economies to energy price shocks.

Natural Gas Divergence and Geopolitical Risks

Natural gas markets presented a mixed picture. European natural gas futures jumped by 5% to around €55.80/MWh, hitting a three-year high. This surge extended a 67% rally from the previous week, driven by escalating supply concerns. QatarEnergy declared force majeure on liquefied natural gas (LNG) exports following disruptions at its Ras Laffan industrial city facilities due to the Middle East conflict. This declaration exacerbated fears of supply shortages in Europe, which relies heavily on LNG imports.

Conversely, U.S. natural gas futures experienced a decline of 2.8%, trading at $3.10 MMBtu. This downturn reflected softer export demand coupled with increasing domestic supply, creating a divergence from the European market.

Energy Stocks React Unevenly

Global energy stocks exhibited a mixed performance. Shares of Saudi Aramco, the state-owned oil giant, reached their highest level in a year as Middle Eastern producers began curtailing production amid the Strait of Hormuz blockade. Aramco's stock closed 4% higher at SAR 26.94 on the Saudi Exchange (Tadawul), a slight retreat from SAR 27.14 during Sunday's trading. Reports of production shut-ins by Iraq and Kuwait due to storage capacity concerns amplified market anxieties. Citi estimates that global oil markets could face a loss of 7M-11M bbl/day of crude oil and another 4M-5M bbl/day of oil products due to the Hormuz blockage. This potential supply disruption underscores the vulnerability of the global energy system.

European energy majors saw gains, with Shell PLC (LSE:SHEL, NYSE:SHEL) rising 1.9% to 3,192p and BP PLC (LSE:BP.) increasing 1.2% to 504.9p. Mid-cap companies like Ithaca Energy PLC (LSE:ITH), Harbour Energy PLC (LSE:HBR), and Energean PLC (LSE:ENOG) also experienced gains. However, U.S. oil and gas stocks displayed relative weakness despite the surge in oil prices. The State Street Energy Select Sector SPDR ETF (NYSEARCA:XLE) remained flat, increasing only 0.93% over the last five trading sessions. Exxon Mobil (NYSE:XOM), Chevron Corp. (NYSE:CVX), ConocoPhillips (NYSE:COP), Occidental Petroleum (NYSE:OXY), and EOG Resources (NYSE:EOG) also exhibited modest gains over the same period. This divergence may suggest that the oil price rally is losing momentum, or that higher energy prices are already factored into stock valuations. The S&P 500 Energy Sector has returned 25.6% year-to-date, outpacing the broader market.

JPMorgan Chase anticipates that Brent crude oil prices could surge to $120 per barrel if the Middle East conflict leads to a sustained disruption of oil flows through the Strait of Hormuz. StanChart projects Brent crude to average $70/bbl in 2026, a slight increase from its previous forecast of $63.50/bbl.