We have a run for the ages underway in crude oil. Both WTI and Brent futures have surged by more than 20% in just a few weeks. But interestingly, oil stocks have been lagging behind. Is that an opportunity?
Take a look at my MoneyShow Chart of the Day. It shows the one-month percentage change in WTI and Brent crude oil futures, plus the State Street SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and the State Street Energy Select Sector SPDR ETF (XLE). While WTI is up 28.5% and Brent is up 22.6%, XOP is up “only” 10.1% and XLE is up just 6.2%.
WTI (Red), Brent (Black), XOP (Blue), XLE (Green)
1-Month % Change
Source: TradingView
Now, I don’t want to beat up on the XLE and XOP TOO much here. The benchmark ETFs for diversified energy companies and explorers and producers, respectively, are both having phenomenal years. XLE is up 44% and XOP is up 54%. But even those gains lag behind the year-to-date price moves in crude (84% for WTI, 79% for Brent).
Some of that could stem from the lousy performance of natural gas. US gas futures are down more than 18% YTD, something that can weigh on integrated oil and gas companies.
Some of the divergence may come from the fact energy stocks are still STOCKS. If the overall market struggles, as we’ve seen with the S&P 500 Index (^SPX) lately, it can weigh on equities broadly.
Some of it may be driven by the fact traders expect oil prices to retreat in the out-months if Middle East tensions subside. Oil futures contracts for delivery in mid-to-late 2027 are priced in the $70s, for instance.
So, what’s the opportunity? If you’re an energy bull who thinks oil the commodity will remain “higher for longer,” you can take advantage of this situation by adding more energy stock exposure – both on an absolute basis and relative to the market. Food for thought amid this latest, greatest divergence.
