Latest / Energy Economics with Fexingo: Oil Prices, Renewables, and the Cost of Power / Why Oil Stocks Are Surging While Solar Stocks Tumble in July 2026
Transcript
- Lucas: It’s July 17, 2026, and if you’ve glanced at the energy sector this week, you’ve seen a pretty stark split. Oil stocks are on a tear—the XLE, the energy ETF, is up three and a half percent in five days. But clean energy ETFs? The iShares Global Clean Energy ETF, ICLN, is down nearly five percent. Luna: And it’s not just the ETFs. Look at individual names. Enphase dropped eight percent in a week. First Solar down seven. Meanwhile, ExxonMobil and Chevron are both up over four percent. Lucas: Right. So what’s driving this? Part of it is oil itself. WTI crude settled at about seventy-nine dollars a barrel on Monday, up from around seventy-two in mid-June. That’s a ten percent rally in about a month. Luna: That rally has a pretty clear catalyst: the Strait of Hormuz. Iran-U.S. tensions have been escalating, and traders are pricing in a genuine supply risk. Lucas: Yeah, about a fifth of the world’s oil passes through that strait. Even a minor disruption would ripple quickly. So oil stocks get a bid on that headline alone. Luna: But the clean energy sell-off isn’t just about oil being up. There’s something else going on. Lucas: I think it’s a rotation. Look at the macro backdrop. The latest CPI print—June data—came in at 332.6, down from 333.98 in May. Core CPI, which strips out food and energy, edged down to 336.1. It’s basically flat, but the trend is cooling. Luna: Cooling inflation usually means the Fed can ease off. That should be good for growth stocks, including solar, right? Lucas: In theory. But the market is reading this a little differently. The ten-year breakeven inflation rate—the bond market’s expectation for future inflation—is down to 2.22 percent. That’s very close to the Fed’s target. Luna: So the market thinks the Fed is probably done hiking, and might start cutting next year. Lucas: Exactly. But here’s the catch: a soft landing scenario, where inflation cools without a recession, actually benefits value and cash flow heavy sectors more than high-growth, high-burn names. Oil majors are generating enormous free cash flow at these prices. Luna: And solar companies are still heavily dependent on project financing and policy support. higher for longer interest rates, even if they’re plateauing, hurt their cost of capital. Lucas: Right. So you have this convergence: oil stocks look cheap, they’re paying dividends, they’re buying back shares. Solar stocks, meanwhile, are priced for perfection on the IRA and on rate cuts that haven’t materialized yet. Luna: It reminds me of the rotation we saw in late 2023, when oil and gas stocks outperformed renewables for about six months straight. Lucas: That’s a good parallel. Back then, the catalyst was the war in Gaza and a surprisingly resilient economy. This time it’s Hormuz plus cooling inflation. But the pattern is similar. Luna: I want to dig into one solar name specifically—Enphase. Down eight percent this week, and it’s now trading around forty-one dollars. That’s down more than eighty percent from its 2022 high. Lucas: Enphase is a case study in how sentiment can shift. The company makes microinverters for solar panels. It’s a good product, but it’s tied to the U.S. residential solar market, which has been hammered by high interest rates and net metering policy changes in California. Luna: And on the other side, ExxonMobil at a hundred and forty-five dollars—near its all-time high. It’s yielding about three and a half percent. The market is rewarding that stability. Lucas: One number that stands out to me is the energy sector’s free cash flow yield relative to the rest of the market. The XLE is yielding something like eight percent free cash flow. The S&P 500 overall is maybe four percent. That gap is attracting yield-hungry investors. Luna: So the question is: is this a tactical trade that reverses when rates actually come down, or something more structural? Lucas: I think it’s part structural. The energy transition is real, but it’s not a straight line. Oil and gas are going to be part of the mix for decades. And right now, the economics favor the incumbents. Luna: Before we go further, I want to mention something that actually ties into this. A lot of listeners have told us that walking through the economy with us has helped them make sense of their own portfolios. And we want to keep this show ad-free and accessible to everyone. Lucas: Yeah, we do. If you find value in these conversations, you can support the show at buy me a coffee dot com slash fexingo. It’s a simple way to help us keep doing what we do. Luna: And it really does make a difference. Even a small contribution helps us cover hosting costs and research tools. Lucas: Okay, back to the rotation. So we’ve got oil stocks rallying on geopolitics and cash flow, and solar stocks getting hammered by rate sensitivity. But there’s a third leg to this stool, and that’s natural gas. Luna: Henry Hub is at two eighty-six today, down a bit on the week. But it’s actually up from two seventy-three a month ago. So gas is stable, not surging like oil. Lucas: That’s because the gas market is more domestic and less exposed to geopolitical shocks. The U.S. is the biggest producer, and storage levels are comfortable. So gas isn’t really part of this divergence story. Luna: But it does affect the economics of solar in a subtle way. Cheap natural gas makes it harder for solar to compete in wholesale power markets, especially when the sun isn’t shining. Lucas: Good point. And that’s another headwind for solar earnings, on top of financing costs. Luna: So for an investor listening, what’s the takeaway? Is it time to rotate out of clean energy? Lucas: Not necessarily out entirely. But I’d argue that the bar for entry into solar stocks is higher today than it was a year ago. You need to be selective—look for companies with strong balance sheets, diversified revenue, or exposure to utility-scale projects rather than residential. Luna: And on the oil side, the risk is that the Hormuz premium fades. If tensions de-escalate, oil could give back some gains pretty quickly. Lucas: Absolutely. But even without the geopolitical premium, oil stocks are supported by buybacks and dividends. That’s a different kind of cushion than growth expectations. Luna: So we’re really talking about two different risk profiles. Oil stocks are a cash-flow play; solar stocks are a bet on the future. Lucas: Right. And the market right now is saying it prefers cash in hand over promises of future growth. That could change, but for now, the divergence is real and it’s backed by fundamentals. Luna: Alright, let’s leave it there. Thanks for listening, and we’ll be back tomorrow with another angle on the energy economy.