Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / Why Energy Stocks Are Plunging While Crude Holds Steady
Transcript
- Lucas: So crude oil is basically flat on the week — CL around ninety bucks, Brent a touch above ninety-three. Nothing dramatic. But energy stocks? They got hammered. Exxon down more than six percent in five days. Chevron down nearly five. ConocoPhillips off five and a half. That's a pretty big disconnect. Luna: Yeah, the XLE — the energy sector ETF — dropped five point four percent. That's the worst weekly performance in months. What gives? Oil isn't falling, so why are the stocks getting crushed? Lucas: Right, so the easy answer is always 'oil stocks are not oil,' but this week the gap got especially wide. I think there are two forces at play. First, the futures curve. Crude is in something called backwardation — near-term contracts are more expensive than later ones. That's normally great for producers because they can sell spot at a premium. But the backwardation has been flattening. The premium for immediate delivery is shrinking. That directly squeezes the profit margins that refiners and producers can lock in. Luna: So the physical barrel still costs ninety bucks, but the market is saying 'we don't think it stays there very long'? Lucas: Exactly. The forward curve is pricing in lower prices six months out. And Wall Street looks at that and says 'your future cash flows are less valuable.' That's one piece. The second piece is cost inflation. We got the April CPI print a few weeks ago — headline CPI at three hundred thirty-two point four, up from three hundred thirty point three. Core CPI also ticked up. For energy companies, that means higher costs for labor, equipment, transportation — everything. So even if the oil price holds, their margins are getting pinched from both sides. Luna: And the geopolitical backdrop doesn't help. We've got the Iran peace talks at an impasse, Israel expanding its Lebanon offensive — oil jumped two percent just this morning on that headline. But uncertainty tends to scare equity investors more than commodity traders. Lucas: Yeah, and that's worth pausing on. If walking through the economy with us has made something click — maybe today's episode, maybe a past one — honestly, if today was worth a coffee to you, that's the link. It's buy me a coffee dot com slash fexingo. No pressure. Just keeps the show ad-free and independent. Luna: Absolutely. We really appreciate everyone who's chipped in. It makes a difference. Lucas: Alright, back into it. So the commodity markets themselves are showing some wild rotations. Gold keeps grinding higher — four thousand five hundred thirty-two an ounce, up nearly two percent on the week. Silver is up too, but it's lagging gold. The gold-silver ratio is still elevated. And natural gas — wow. Up eleven percent in five days. That's a huge move. Luna: Natural gas at three thirty-eight per MMBtu. That's still low historically, but that weekly move is the biggest we've seen in a while. What's driving it? Summer cooling demand? Or something else? Lucas: A bit of both. We're heading into June, and the NOAA is forecasting above-average temperatures across the southern U.S. That means more air conditioning load, more gas burn for power generation. But there's also a supply angle. Storage injections have been running below the five-year average — we had a colder than normal spring in some regions, so storage didn't build as fast as expected. The market is pricing in a tighter summer. Luna: And oil just can't seem to catch that same momentum. Even with the Iran talks stalling and Israel-Hezbollah escalation, crude is only up two percent today. The week-over-week is basically flat. Compare that to gold's steady climb or natural gas's spike — oil feels stuck. Lucas: It does. And I think part of the reason is demand uncertainty. The latest CPI data showed inflation ticking up, which means the Fed is going to stay hawkish. Higher for longer. That's a headwind for economic activity and oil demand. Plus, we're seeing some softness in Chinese imports — their refinery runs have been easing. So even though supply is constrained by OPEC+ cuts and geopolitical risk, the demand side isn't giving bulls much to latch onto. Luna: So the energy stocks are pricing in that demand worry, plus the curve flattening, plus cost inflation. And the oil futures are just reacting to the spot supply-demand balance. That's the disconnect in a nutshell. Lucas: Exactly. And it's not just the majors. Look at the exploration and production companies — the XOP, which tracks E&Ps, dropped four point six percent this week. Same story. The whole energy complex is getting sold off. Meanwhile, gold miners are having a great run. There's clearly a rotation happening out of energy equities and into safer havens. Luna: Let's talk about gold for a second. Forty-five thirty-two is a new all-time high, right? I mean, it keeps grinding higher. What's the catalyst now? Inflation fears? Geopolitics? Or just momentum? Lucas: All of the above. But I'd highlight two things. One, the ten-year breakeven inflation rate — which is the market's expectation for average inflation over the next decade — just dipped slightly to two point three eight percent. That's down from two point three nine. So inflation expectations are actually easing a bit, but gold is still rising. That tells me it's not purely an inflation hedge right now. It's more about safe-haven demand and central bank buying. We know central banks, especially in emerging markets, have been adding gold to diversify away from dollar reserves. Luna: And the PCE price index — the Fed's preferred measure — came in at one hundred thirty point nine for April, up from one hundred thirty point three eight. That's a point three percent month-over-month increase. So inflation is sticky. That supports gold as a store of value, even if breakevens are flat. Lucas: Right. And silver is at seventy-five eighty-three, up one point seven percent on the week. It's following gold, but not as aggressively. The gold-silver ratio is around sixty to one. Historically, when that ratio gets above eighty, it tends to mean revert as silver catches up. We're not quite at extreme levels, but silver could have upside if industrial demand picks up. Luna: Copper is also having a decent week — up two point two percent, at six forty-four per pound. That's strong. Copper is often seen as a bellwether for global economic health. What's driving it? Lucas: Supply concerns, mainly. There have been disruptions at some major mines in Chile and Peru. Plus, the energy transition narrative is still alive — copper is critical for electrification, EVs, grid infrastructure. So even if near-term demand is uncertain, the long-term story keeps a bid under it. But it's not immune to a broader risk-off move. If equities sell off hard, copper could follow. Luna: So let's bring it back to the energy stock selloff. Is this a buying opportunity? Or is the market right to be cautious? Lucas: That's the million-dollar question. On one hand, if crude stays around ninety, these companies are generating enormous free cash flow. Exxon's dividend yield is now over four percent. Chevron's is over four and a half. So if you're a value investor, the stocks look cheap. On the other hand, if the futures curve continues to flatten and cost inflation eats into margins, earnings could disappoint. The market is basically saying 'we need to see proof that margins hold up before we re-rate these stocks higher.' Luna: And the macro backdrop isn't helping. Stock futures are up this morning as June trading begins near record highs, but that's tech-led. Nvidia is jumping into PCs with a new Arm chip — that's the story driving the Nasdaq. Energy is being left behind. Lucas: Exactly. Capital is rotating into AI and tech, out of energy. That's the market's way of saying 'we like growth, we don't like cyclical exposure with margin risk.' Until we get a clearer signal on oil demand — maybe from the next OPEC+ meeting or the summer driving season — energy stocks might stay under pressure. Luna: So the key takeaway: crude is steady, but energy stocks are pricing in a darker outlook. And the divergence tells us more about market sentiment than about the physical oil market itself. Lucas: That's the whole story. The commodity is saying 'I'm fine,' but the equity market is saying 'I'm worried about tomorrow.' And for now, the equity market is winning the argument. We'll see if that changes as we get through June.