Latest / Energy Economics with Fexingo: Oil Prices, Renewables, and the Cost of Power / The Oil Stock Crash Is Sending a Signal About Earnings
Transcript
- Lucas: So crude oil is down about 3 and a half percent over the past five trading days — WTI sitting around 73 and change. But if you look at the energy stocks, the sell-off is even sharper in some names. Chevron down 3.2 percent for the week. The XLE energy ETF off 3.1 percent. Luna: So the stocks are falling faster than the commodity itself. That's not always the case, right? Lucas: Exactly. Usually when crude drops, energy equities follow roughly in step, sometimes with a lag. But this week the equities are leading the downside — and that's a signal. The market is pricing in something beyond just today's oil price. Luna: Like what — that earnings are about to get squeezed? Lucas: That's the big one. Think about it this way. Oil at 73 is still profitable for most producers — the breakeven for Permian Basin wells is somewhere in the 40s. But the market is looking at 2026 and seeing margins shrink on the refining side, on the chemical side, and maybe even on the production side if demand keeps softening. Luna: And we've got that China demand narrative hanging over everything. The headlines out of Beijing have been pretty weak on industrial activity. Lucas: Right. China's crude imports were down year-over-year in recent months. That's a structural headwind for global demand. And when the biggest marginal buyer steps back, the whole price floor gets shaky. But the stocks are telling us something more specific. Luna: Let's talk about Chevron. Down 3.2 percent in a week. Exxon down about 1.9. Why the difference? Lucas: Exxon has a bigger downstream and chemical business, which gives it some diversification. Chevron is more weighted to upstream production and also has a big exposure to the Permian, where costs have been creeping up. So when the market worries about margins, Chevron's more exposed. Luna: And ConocoPhillips — COP — down 2.9 percent. That's a pure-play E&P company. No refining cushion at all. Lucas: Exactly. When you strip away the integrated model, you see the raw sentiment on oil prices. And that sentiment right now is: we might have seen the peak for this cycle. Luna: But crude is still above 70. That's not exactly a bust. Lucas: No, it's not a bust. But look at the 10-year breakeven inflation rate — it dipped slightly to 2.25 percent. That tells you the bond market isn't betting on a big reflationary push from energy. And the CPI data from May showed core inflation still sticky at 336.1. So the Fed isn't cutting rates aggressively anytime soon. That's a headwind for economic activity and oil demand. Luna: So the argument is: the equity market is discounting lower oil prices ahead, while the spot market is still reacting to current supply constraints. Lucas: Exactly. And there's another piece. The clean-energy ETF ICLN is up 3.1 percent this week. That's money rotating out of oil stocks into renewables. Not a huge move, but it's happening. Luna: Which is interesting because some of the solar names are actually down — First Solar down 3 percent, Enphase up 2 percent. So it's not a straight line. Lucas: No, it's a rotation within a rotation. The ICLN tracks a broader basket — wind, solar, efficiency, grid tech. Some of those companies are benefiting from the IRA tax credits and state-level mandates. But the individual solar names have their own issues — tariffs, inventory gluts, project delays. Luna: So the signal from the stock market this week is: lower oil earnings ahead, and maybe a slow shift toward clean energy, but it's not a stampede. Lucas: Right. And that's the nuance. When you see the XLE down 3.1 percent while WTI is down 3.4 percent, it's not a huge divergence. But the fact that stocks are leading on the downside — and that the clean-energy ETF is green — tells you the market is thinking about the next six months, not just the next six hours. Luna: Speaking of thinking about the next six months — if you find these kinds of market signals useful, and you want the show to keep going ad-free, a couple of dollars a month genuinely makes a difference. It's buy me a coffee dot com slash fexingo. No pressure, just if the podcast has helped you understand something. Lucas: Yeah, and it does add up. We keep the show independent and focused on the numbers, and listener support is a big part of that. So thank you to anyone who chips in. Luna: Alright, so back to that divergence. One thing I want to flag: the natural gas market has been relatively quiet — Henry Hub around 3.06, flat for the week. But the NG futures are up almost 2 percent in the past five days. Lucas: That's interesting because natural gas is often a lagging indicator. When oil sells off, gas sometimes gets caught up in the downdraft, but not this time. It's holding steady, which suggests the market sees a floor under gas prices — maybe because of LNG export demand and the fact that storage levels are not as high as they were last year. Luna: So if the energy stock sell-off continues, what would you watch for as a confirmation signal? Lucas: I'd watch the earnings calls over the next few weeks. If the majors start talking about scaling back buybacks or cutting capex guidance, that's a sign they see the same headwinds the market is pricing in. Also watch the refinery utilization rates — if they drop below 90 percent, that's a margin squeeze signal. Luna: And on the clean energy side, if ICLN holds above 21 and keeps rising while oil stocks fall, that's a real rotation, not just a one-week blip. Lucas: Exactly. The next few weeks will tell us whether this is a tactical pullback or the start of a bigger trend. For now, the tape is saying: earnings peak may be behind us. Luna: And that's the kind of signal you don't get from just watching the oil price ticker.