Latest / Energy Economics with Fexingo: Oil Prices, Renewables, and the Cost of Power / Why Solar Stocks Are Surging While Oil Tumbles in 2026
Transcript
- Lucas: Luna, I have been staring at the screen all morning, and the divergence this week is frankly extraordinary. WTI crude fell more than eleven percent in five days. Meanwhile, Enphase Energy — a solar microinverter company — shot up nearly twenty-nine percent in the same window. That is not a normal correlation break. That is a chasm. Luna: It's jarring when you put it that way. I mean, oil is down, solar is up — we've seen green shoots before, but twenty-nine percent? That's a statement. Lucas: It is. And the broader clean-energy indexes confirm it. The iShares Global Clean Energy ETF, ticker i c l n, gained five percent. The Invesco Solar ETF, T-A-N, up five-point-three. First Solar, the panel manufacturer, added more than ten percent. So this isn't just Enphase having a weird week. There's genuine rotation happening. Luna: So the energy sector as a whole — the XLE — was down what, about two percent? But oil itself took a much bigger hit. That suggests the pain is concentrated in upstream producers and maybe refiners, not the whole complex. Lucas: Exactly right. The XLE fell one-point-eight percent over five days. But ExxonMobil dropped three-point-five. ConocoPhillips fell three-point-three. Chevron was relatively mild at one-point-five. So the big upstream names got hammered. Meanwhile, the broader market — the S&P 500 — notched its eighth winning week and a new record close on Friday. Money is clearly rotating out of oil and into other sectors, and a chunk of that cash is landing in solar. Luna: Let's pull on the oil thread first. WTI at ninety-six-sixty, Brent at one-oh-three-fifty-four — both down hard. What's driving the selloff? Is it demand fears, supply surprises, or something else? Lucas: I think it's a mix, but the dominant narrative this week has been demand concern. We got the April CPI print — headline at three hundred thirty-two-point-four, up from three thirty-point-two-nine the month before. Core CPI at three thirty-five-point-four. Inflation is sticky. The ten-year breakeven inflation rate ticked up to two-point-four percent. That keeps pressure on the Fed, and higher for longer rates slow economic activity, which hits oil demand. But there's also a supply angle — Irag's export restart is weighing on sentiment. Luna: Right, the headlines about Kevin Warsh and potential 'regime change' in Fed plumbing — that's about the repo market, not rates directly. But it adds uncertainty. Markets hate uncertainty. And oil markets are particularly sensitive to anything that hints at tightening financial conditions. Lucas: Exactly. And on the solar side, the catalyst might be more specific. Enphase reported earnings a few weeks ago that weren't blowout, but the company guided for a stronger second half. And First Solar is benefiting from the reshoring narrative — the Inflation Reduction Act's manufacturing credits are real, and the tariffs on imported panels are creating a price floor for domestic producers. The market is starting to price in that structural shift. Luna: So we have a tactical oil selloff driven by macro fears, and a structural solar rally driven by policy and technology trends. But how much of this is just a one-week noise? I remember plenty of false dawns for clean energy. Lucas: That's the million-dollar question. Let's look at the data. The ICLN ETF is still down year-to-date if you zoom out. Solar had a brutal 2024 and early 2025. So this week could be a dead-cat bounce in a bear market. But the magnitude — Enphase up twenty-nine percent in five days — suggests something more than random noise. Short covering could be part of it; Enphase has a high short interest. But First Solar's ten-percent move is harder to explain by short covering alone. Luna: I noticed natural gas dropped three-point-nine percent this week too, Henry Hub at two-ninety-one. So the entire fossil fuel complex is under pressure. But the economic data — PCE price index at one thirty-point-three, core PCE at one twenty-nine-point-three — both still climbing. Inflation isn't going away. So you'd think energy would hold up if inflation is persistent. Why isn't it? Lucas: Because the market is looking through the rearview. The inflation data is backward-looking. The bond market is pricing in a slowdown. The two-year Treasury yield dipped this week, and the curve is steepening. That's a classic growth scare signal. And oil is a growth-sensitive commodity. Solar, on the other hand, benefits from high electricity prices — which are sticky because of natural gas costs — and from policy support that is independent of the business cycle. So you have a sector that's defensive in a slowdown and levered to secular growth. Luna: That's a compelling narrative. But I want to pressure-test it. If we're entering a slowdown, corporate capital expenditure on solar installations might get delayed. Companies tighten belts. So solar demand isn't entirely immune. Lucas: Fair point. But utility-scale solar is largely driven by long-term power purchase agreements and regulatory mandates. Those don't disappear in a mild slowdown. Residential solar is more discretionary. Enphase is heavily residential. So the rally there is a bet that the consumer is still healthy enough to invest in rooftop solar, especially with electricity rates above four-fifty a gallon — sorry, four-fifty a gallon for gas — and summer coming. Luna: Gasoline prices actually dipped a cent to four-forty-nine, according to the latest data. But that's still painful. And the CPI shows energy prices remain elevated. So the cost of power — both gasoline at the pump and electricity — is top of mind for consumers. That helps solar's payback math. Lucas: Exactly. The average payback period for a residential solar system in the US is now around seven to eight years, down from ten-plus a decade ago. And with net metering policies still favorable in many states, the economics are solid. Enphase's microinverter technology also has a reliability advantage over string inverters, which justifies a premium. So the company has a moat. Luna: But Enphase trades at a price to earnings ratio of — what, about twenty-eight? That's not cheap. First Solar trades at around twenty-two times forward earnings. So these stocks are pricing in a lot of good news. If the macro deteriorates further, those multiples could compress. Lucas: No argument there. But compare them to the oil majors. Exxon at twelve times earnings, Chevron at eleven. The oil stocks are cheap because the market sees terminal decline risk. Solar stocks are expensive because the market sees long-term growth. The question is which narrative is more wrong. I suspect both are overstated. Oil isn't going to zero tomorrow, and solar isn't going to take over the world next year. But the direction of travel is clear. Luna: So what's the one concrete takeaway for a listener who wants to understand this week? Not a trade recommendation, just a mental model. Lucas: The mental model is this: When oil drops eleven percent and solar jumps twenty-nine percent in the same week, the market is pricing a regime shift. It might be premature. It might be wrong. But the signal is that capital is voting with its feet. The energy transition is not a linear trend — it comes in bursts. This week looks like one of those bursts. Listeners should watch whether the ICLN and TAN ETFs can hold these gains in the coming weeks. If they do, it's more than a fluke. Luna: And if they don't? If next week oil bounces and solar gives back? Lucas: Then it was a rotation within a range-bound market. But the fact that the S&P 500 hit a record while energy lagged tells you that the market is looking past fossil fuels for leadership. That's a story that will play out over years, not weeks. This week just gave us a vivid snapshot. Luna: Alright. One to watch. Thanks, Lucas. Lucas: Thanks, Luna. See you next time.