Latest / Energy Economics with Fexingo: Oil Prices, Renewables, and the Cost of Power / Why Clean Energy Stocks Are Falling Faster Than Oil
Transcript
- Lucas: Okay, so oil is getting hammered. West Texas Intermediate crude at just under $72 a barrel, down almost four percent in the last five trading days. Brent not much better at $75 and change. Luna: Right, and we've talked a lot about why — demand concerns out of China, the strait situation, all of that. But what caught my eye today is what's happening on the other side of the energy ledger. Lucas: You mean clean energy? Because while oil is dropping, the S&P energy sector actually gained one point four percent over the same five days. XLE is up. Meanwhile the iShares Global Clean Energy ETF, ICLN — down four and a half percent. The solar ETF TAN, down almost five. Luna: Enphase alone lost nine percent in a week. First Solar off three and a half. So the narrative that clean energy stocks rally when oil prices fall — that's just not happening right now. Lucas: It's a great reminder that these are not simple substitutes. Oil is about global growth, geopolitics, supply chains for a commodity that still powers most transportation. Clean energy stocks are growth equities, and growth equities live and die by interest rates and policy expectations. Luna: And right now rates are still a headwind. The ten-year breakeven inflation rate — that's the market's guess at average inflation over the next decade — it slipped to two point one eight percent. That's down from two point two one just a day earlier. Lucas: Falling breakevens suggest the market thinks inflation is cooling, which normally is good for growth stocks. But the actual nominal yields haven't come down much. So the real rate — the yield minus expected inflation — is actually rising. That's a killer for long-duration assets like solar stocks. Luna: Right — future cash flows get discounted more heavily. And a lot of these companies are pre-profit or have thin margins. So a small move in real rates hits their present value hard. Lucas: There's also a policy piece. The Inflation Reduction Act is now almost four years old. The big spending authorizations are largely baked in. And in this election year — well, it's June 2026 — the political tailwinds for aggressive climate policy are not as strong as they were in 2022. Luna: Plus there's a supply glut in solar panels specifically. Chinese manufacturers have been flooding the market with modules, driving down prices, which sounds great for deployment but kills margins for companies like First Solar and Enphase that operate in that space. Lucas: First Solar has some protection because its technology is different — thin film versus crystalline silicon — but the pricing pressure still bleeds over. Enphase sells microinverters, which are tied to new installations. If panel prices crash, installers make thin margins and delay upgrades. Luna: So what we're seeing is a sector that's getting squeezed from two directions: higher real rates on one side, and a commodity price war on the other. Meanwhile oil is falling for completely different reasons — demand destruction, not a supply glut. Lucas: And that's the key. Oil is down because the market is pricing in a weaker global economy — fewer barrels burned in factories and trucks. Clean energy stocks should, in theory, benefit from that same economic weakness because lower oil prices reduce the urgency for transition. Luna: But investors don't seem to be making that connection. They're selling both oil and clean energy, just for opposite reasons. Oil on demand fears, clean energy on rate fears and margin compression. Lucas: Let me pull out one more number: the PCE price index came in for May at one hundred thirty-one point five, up from one thirty point nine four in April. Core PCE, ex food and energy, also ticked up. That's the Fed's preferred inflation gauge, and it's still sticky. Luna: So even though breakevens are falling, actual inflation isn't dead. The market is pricing in a lower long-term trend, but the month to month data is still warm. That keeps the Fed from cutting rates aggressively. Lucas: Exactly. And for clean energy stocks, no rate cuts means no relief valve. The ICLN ETF is down about twenty percent from its high earlier this year. TAN is off even more. Enphase is basically back to where it was in late 2023. Luna: I want to push back a little on the 'oil is falling on demand' story. Because if you look at the energy sector stocks — Exxon, Chevron, ConocoPhillips — they're down only a fraction of a percent over five days. The XLE actually gained. So equity investors in oil companies are not panicking. Lucas: That's a really good point. The stocks are telling us that the sell-off in crude might be overdone, or at least that the companies are still generating huge free cash flow at these prices. Exxon's dividend yield is still attractive. Chevron's buyback is intact. Luna: Whereas clean energy companies are mostly unprofitable or barely profitable. So when the macro turns slightly sour, they have no cushion. And that's the divergence we're seeing in the tape. Lucas: So the trade of the week is not 'buy clean energy because oil is down.' It's more like 'sell clean energy because rates are staying higher for longer, and oil stocks are actually a relative safe haven.' Luna: Speaking of things that are a safe haven — we should mention that natural gas is actually up two percent in the same period. Henry Hub at $3.32. So within energy, there's a rotation away from oil and into gas. Lucas: That fits the narrative too. Natural gas is less tied to global growth cycles, more tied to domestic power generation and heating. And with summer cooling demand starting to ramp, gas gets a seasonal bid. Plus, it's a cleaner fuel than coal, so it benefits from some of the transition rhetoric without the rate sensitivity of solar stocks. Luna: So if you're an investor looking at the energy space right now, the map is complicated. Oil down, gas up, clean energy down hard, oil stocks flat to up. It's not a simple story. Lucas: It never is. But I think the takeaway for today is: don't assume correlations hold. Oil and clean energy are both 'energy' but they respond to completely different drivers. Oil is about the global business cycle. Clean energy is about the cost of capital and policy credibility. Luna: And right now the cost of capital is still high, and policy credibility is being tested. That's a tough combo for renewables. Lucas: You know, if walking through these connections with us has made something click about how the economy actually works, that's exactly why we do this show every day. It's ad-free, independent, and we keep it that way because listeners like you chip in. A couple of dollars a month is genuinely what keeps these going — buy me a coffee dot com slash fexingo, if you've gotten something out of them. Luna: Yeah, it really does make a difference. And we've never put anything behind a paywall, so this is how the lights stay on. Lucas: Back to the market — one thing I want to watch in the coming weeks is whether the clean energy sell-off creates a buying opportunity. If the Fed actually does cut in September, these stocks could rip higher quickly. Luna: But if inflation stays sticky and rates stay put, the pain could continue. So it's a bet on the macro, not on the technology itself. Lucas: Exactly. And that's the lens we try to bring here. Not cheerleading for any sector, just understanding what moves prices and why. Luna: So for now, oil down, gas up, clean energy down harder, and oil stocks shrugging it off. Got it. Lucas: That's the picture as of June 25th, 2026. We'll keep watching the data and bring you what changes.