Latest / Energy Economics with Fexingo: Oil Prices, Renewables, and the Cost of Power / Why Oil and Clean Energy Stocks Are Falling Together
Transcript
- Lucas: So oil is down five and a half percent this week, WTI at eighty-four thirty-three. But the iShares Global Clean Energy ETF, ticker i c l n, is down six and a half percent. Those two usually don't move in lockstep. Luna: Exactly. When oil drops, renewables are supposed to look more competitive. But this week they're both getting hammered. What gives? Lucas: Right. The obvious culprit is macro fear. The Fed held rates steady today, but three members voted to hike. That uncertainty plus the Dow diving after the decision — markets are pricing in a real chance of recession. Luna: And recession kills demand for everything — oil for transportation and heating, clean energy for new installations. It's a broad energy demand destruction trade. Lucas: Exactly. Look at the numbers: Brent dropped from just over a hundred dollars a couple weeks ago to ninety-one eighty today. That's a near ten percent decline in two weeks. And that's despite the Iran strike escalation and Trump's 'beating' rhetoric. Luna: So the market is basically saying: we've got bigger problems than supply disruptions. Demand fears are winning. Lucas: Yeah. And the clean energy names are even more rate-sensitive. Companies like Enphase, ticker e n p h, down six percent in five days. First Solar, f s l r, down only one percent — it's actually held up better. But the sector overall is getting crushed. Luna: And yet gas at the pump is still four-ten a gallon. That's up from four bucks earlier this month. Why isn't that falling with crude? Lucas: Gasoline lags crude because of refinery margins and seasonal demand. But if crude stays at eighty-four, we should see pump prices start to drop in the next couple weeks. That could actually help consumer sentiment a bit. Luna: Though if recession fears get worse, maybe consumers won't feel like spending the savings anyway. Lucas: That's the tricky part. But let me step back for a second. A handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, and that's literally what funds us making as many episodes as we do. If walking through the economy with us has made something click, that link is the only reason we stay ad-free. So — Luna: Yeah, totally. And it keeps us independent, which matters especially when covering sectors like energy where advertising would create conflicts. Lucas: Exactly. So back to the sell-off. What I find interesting is that the renewable energy index has actually fallen more than oil in percentage terms. ICLN is down about seventeen percent from its June high, while WTI is down about twelve percent from its recent peak. Luna: That suggests the market sees clean energy as a high-beta play on growth. When recession looms, investors dump the longer-duration, more speculative names first. Lucas: Right. And there's a specific irony here: if we do get a recession, lower oil prices could reduce the urgency for energy transition policies. That's another headwind for clean energy. Luna: So you're saying the very thing that helps oil demand — a recession — also hurts clean energy demand and policy support? Lucas: Pretty much. The only difference might be in natural gas. Henry Hub is down five percent this week to two seventy-two, but that's more about mild weather and storage builds than macro. Luna: And the energy sector stocks? XLE is down just one percent. That's actually pretty resilient compared to oil itself. Lucas: Yeah, big oil like Exxon and Chevron are barely down. Exxon only off forty basis points. The market seems to think integrated majors can weather a demand slowdown better than upstream pure plays. XOP, the exploration ETF, is down nearly two percent. Luna: So the trade of the week is sell clean energy, hold Big Oil. That's a brutal narrative for anyone betting on the energy transition. Lucas: It is. But it's also worth noting that the ten-year breakeven inflation rate ticked down to two point twenty percent. That's falling inflation expectations. If that continues, it could eventually allow the Fed to cut rates, which would be a huge tailwind for renewables. Luna: But we're not there yet. Right now the market sees a divided Fed, rising recession risk, and geopolitical noise that's being completely ignored. Lucas: Exactly. The headline from today's Fed meeting is that three members voted to hike. That's a big shift. It tells you there's internal concern that inflation isn't dead yet, even with oil crashing. Luna: And yet core CPI and core PCE are both hovering near recent lows. So the hawks are worried about something else — maybe wage growth or services. Lucas: Right. And that keeps the entire risk spectrum under pressure. You saw the Dow dive today, S&P volatile. When bonds and stocks and commodities all sell off together, it's usually a liquidity or macro panic. Luna: But oil has had a huge run-up before this. It was above ninety-eight in early July. So some of this drop is just profit-taking on supply fears that didn't materialize. Lucas: Sure, the Iran situation hasn't actually disrupted flow. The Strait of Hormuz is still open. And the tanker strike concerns from a few weeks ago have faded. So the risk premium is unwinding. Luna: But then that should be a net positive for clean energy, not a negative. So I keep coming back to the macro explanation. Lucas: I think that's the right read. It's a demand story, not a supply story. And demand stories are bad for both fossil fuels and renewables when they're tied to economic activity. Luna: So what's the one number to watch next week? If I'm listening and want to know if this keeps going. Lucas: I'd watch the ISM manufacturing PMI coming out Monday. If it drops below fifty, that's going to reinforce the recession narrative and oil could test seventy-five. Clean energy would get hit even harder. Luna: And if it stabilizes above fifty? Lucas: Then the risk premium might rebuild, and we could see a bounce in both oil and clean energy, but oil more because it's been oversold on geopolitics. That would be the contrarian trade. Luna: Alright. So either way, energy markets are in for a volatile August. Lucas: They sure are. And the Fed's internal divide means any data surprise could swing markets sharply. Stay tuned.