Latest / Energy Economics with Fexingo: Oil Prices, Renewables, and the Cost of Power / Why Oil Stocks Rise as Clean Energy ETFs Fall in July 2026
Transcript
- Lucas: If you've glanced at energy markets this week, you've seen something that is getting harder to ignore. Oil is up — WTI crude gained over 4 percent in the past five days, closing near $71.40 on Friday. Luna: And yet clean energy ETFs are sliding. The iShares Global Clean Energy ETF, ICLN, dropped more than 4 percent in the same stretch. That's a stark divergence. Lucas: It really is. And we've talked about decoupling before — episodes 89, 90, 100 — but this feels like a different phase. Because the reasons aren't just about oil supply or a single policy shift. There's a more structural story here. Luna: Before we get into it — and I know we usually just dive in — I want to say something quickly. This show doesn't run ads. We've always felt that if you're trying to understand something like energy price dynamics, the last thing you need is a commercial break. Lucas: Right. And the reason we can keep it that way is that some listeners choose to support us directly. If walking through the economy with us has made something click, you can find us at buy me a coffee dot com slash fexingo. No pressure, just a way to keep this ad-free. Luna: Exactly. So back to the split. Lucas, you mentioned a structural story — what do you mean? Lucas: Well, start with oil. The headline numbers are strong, but if you look under the hood, it's not really about crude production hitting new records. US output growth has hit a wall — we talked about that a few episodes back. What's driving the rally right now is refining margins and geopolitical risk. Luna: Refining margins being the spread between what refiners pay for crude and what they get for gasoline, diesel, jet fuel. And those have stayed wide even as crude prices have moderated from the highs earlier this year. Lucas: Exactly. The latest data show regular gasoline at $3.78 a gallon nationally — down slightly from $3.83, but still elevated. And refiners are running hot because demand for refined products hasn't cracked, despite higher prices. That's why stocks like Valero and Marathon Petroleum have held up, and it's part of why the energy sector ETF, XLE, gained nearly 4 percent this week. Luna: Meanwhile, clean energy stocks face a completely different headwind. Interest rates. The ten-year breakeven inflation rate has ticked up to 2.24 percent. That might not sound like much, but for capital-intensive renewable projects that rely on cheap debt, any uptick in real rates is a problem. Lucas: And it's not just rates. Look at specific names. Enphase actually bounced a bit — up 0.6 percent on the week. But First Solar dropped over 2 percent. The market is picking winners and losers based on who can navigate supply chain bottlenecks and tariff uncertainty. Solar panel imports have been snarled by new trade restrictions, and that's weighing on the whole space. Luna: So oil is rallying on refining and geopolitics — the Middle East situation isn't going away — while clean energy is getting hit by macro forces. But here's what's interesting: natural gas is falling. Henry Hub futures dropped 9 percent this week, down to around $2.94. Lucas: That's a huge move, and it's a reminder that energy is not one market. Natural gas has its own supply-demand story. Storage levels are healthy, production has been resilient, and we haven't had a major heat wave to spike cooling demand — at least not yet. So even though oil is up, gas is down. Luna: Which means for investors, the old idea of 'buy energy' doesn't work as a blanket strategy. You have to pick your subsector carefully. And for someone just trying to understand what's happening at the pump, it's confusing. Lucas: It is. But the real driver behind the oil-clean energy decoupling right now is this: oil is benefiting from a specific set of near-term catalysts — geopolitics, refining margins, and still-solid demand. Clean energy is being repriced on a longer-term basis because higher rates change the math on project economics. They're responding to different clocks. Luna: Different clocks — I like that. And it explains why even if oil prices moderate, clean energy might not bounce back until the rate outlook shifts. That's a different kind of risk than what we saw in prior cycles. Lucas: Right. And the data backs it up. Core CPI was up in May, core PCE too. The Fed is still watching inflation prints. The breakeven rate inching up suggests the market isn't convinced the battle is over. So until that changes, capital-intensive renewables are going to remain under pressure. Luna: Let's talk about the geopolitical piece a bit more. The headlines this week include a resumption of U.S.-Iran hostilities. That's a direct risk to oil supply through the Strait of Hormuz. Is that the main catalyst for crude? Lucas: It's a big one. Brent crude, which is more internationally priced, was up over 5 percent this week, settling near $76. That's a bigger gain than WTI, which tells you the risk is priced into global barrels. But here's the thing — the oil market has been through this before. Traders are wary but not panicking. The real support is coming from the fact that inventories are relatively tight and OPEC+ hasn't signaled a production increase. Luna: So the supply side is constrained, demand is holding up, and there's a risk premium. That's a recipe for higher oil prices. But again, that's a different story from what clean energy is facing. Lucas: Exactly. And I think the takeaway for listeners is not to treat energy as a monolith. If you're looking at your portfolio, or just trying to understand why your electricity bill isn't going down despite cheaper natural gas, it helps to separate the threads. Oil is about geopolitics and refining. Gas is about storage and weather. Clean energy is about interest rates and trade policy. Luna: And those threads can move in completely different directions at the same time. Which is exactly what we're seeing this week. Lucas: So the question going forward is: how long does this last? If Middle East tensions de-escalate, oil could give back some gains. But the refining margin story might persist as long as gasoline demand stays strong. And for clean energy, the next big catalyst is probably the Fed's next move — or a major policy shift like a new climate bill. Luna: None of which seems imminent. So for now, the decoupling looks set to continue. And that means energy investors need to be more surgical than ever. Lucas: And for everyone else, it means the price at the pump might not tell you much about where your utility's power mix is headed. Those are two different markets, responding to two different sets of forces. Luna: Alright, that's a solid place to leave it. Thanks for sticking with us. Lucas: We'll be back tomorrow with another angle. Until then, keep thinking about where your energy actually comes from.