Latest / Energy Economics with Fexingo: Oil Prices, Renewables, and the Cost of Power / Why Oil Is Up While Clean Energy Stocks Slide
Transcript
- Lucas: So crude oil is having a moment. WTI is sitting just under eighty-five dollars a barrel, up about three and a half percent over the last five trading days, and Brent is pushing ninety-three. The headlines are all about the Straits of Hormuz and the administration's rhetoric around Iran. Luna: And yet solar and wind stocks are getting hammered. The Invesco Solar ETF is down five percent this week. Enphase down eight. Lucas: Right, and that's the puzzle. For years, the narrative was that high oil prices would make renewables more competitive. But that's a slow-motion economic argument. In any given week, the two markets can move for completely different reasons. Today's divergence is really about risk appetite and policy, not the relative economics of a barrel versus a solar panel. Luna: So what's driving the clean energy sell-off? Because it feels like more than just oil stealing the spotlight. Lucas: Two things. First, interest rates. The ten-year Treasury yield is climbing again, and that hits capital-intensive businesses like solar harder than it hits oil majors. A solar farm's cost is mostly upfront. Higher yields mean higher financing costs, and that pressures the whole project pipeline. Second, there's the tariff story. The administration is reportedly talking about a fifty percent tariff on Canadian goods. And Canada is a major supplier of things like aluminum and steel, and also clean electricity in some regions. Luna: Plus, I saw that Trump and Carney are in talks. So there's a real chance these tariffs get walked back, but the uncertainty alone is enough to keep investors on edge. Lucas: Exactly. Uncertainty is poison for a sector that depends on multi-year project planning. And it's not just solar. The whole clean energy complex is down. Enphase is the standout loser, down over eight percent in five days. That's a company that had already been struggling with demand softness in Europe. So you've got a policy overhang and a rates overhang, and the oil rally is just the icing on the cake. Luna: I keep coming back to the rates channel. Because if the ten-year is climbing, that's also a signal that the market expects either higher inflation or more supply. And that's not great for growth stocks in general. Lucas: Right. And here's the thing: the ten-year breakeven inflation rate is around two point two eight percent, up slightly. But the bigger move is in nominal yields. The market is demanding more compensation for holding long-duration debt, and that's a headwind for every long-duration asset. Solar stocks are long duration. They're a bet on cash flows decades out. Oil companies, meanwhile, are generating cash today, and they're returning it to shareholders. So in a rising-rate environment, the market rewards the near-term cash. Luna: So it's not that oil and solar are inversely correlated by nature. It's that they're both responding to the same macro forces, just in opposite ways. Lucas: Exactly. And that's a useful framework for listeners. When you see oil up and solar down, it's tempting to think about substitution. But in the short run, it's usually about risk appetite, rates, and policy. And today you have all three lined up against clean energy. Luna: But let's talk about the oil side for a second. The gains in crude have been pretty broad. Exxon and Chevron are both up over four percent this week, and the oil and gas ETF, XOP, is up three and a half. That's not just geopolitical noise. Lucas: Yeah. And there's a real supply story underneath the headlines. The Iran situation is genuinely tense. The president said there are no talks scheduled, and he's teasing action in the Strait of Hormuz. That's the world's most important oil chokepoint. Roughly a fifth of global oil consumption moves through it. So any credible threat to that route gets priced in fast. But also, crude was already on a bit of a run before the latest headlines. The five-day move is three and a half percent, but the breakout started earlier. You've got OPEC+ keeping production disciplined, and demand has been resilient, especially with summer travel in the rearview. Luna: So is this a one-way bet? I mean, if the Iran situation calms down, do we see a sharp reversal? Lucas: Entirely possible. Oil is notorious for giving back geopolitical risk premiums. But the structural support is still there. OPEC+ has been patient. And if you look at the futures curve, it's not showing a dramatic backwardation that would suggest a near-term squeeze. It's more of a steady grind higher. So I'd say the path of least resistance is up, but the downside risk from a diplomatic breakthrough is real. Luna: And that's the thing for investors. If you're holding clean energy stocks, are you better off waiting for the tariff clarity, or is the rate environment going to be the bigger drag over the next quarter? Lucas: I think rates are the more persistent factor. Tariffs, if they happen, would be a shock. But rates are a slow-moving tide. And right now, the market is repricing for a higher neutral rate. The bond market is telling us that inflation isn't dead, even if the PCE deflator has cooled a bit. Core PCE is still running above the target. So the Fed is unlikely to cut aggressively. That keeps the pressure on for long-duration assets. Luna: So what would change the picture? What would make clean energy attractive again from a macro standpoint? Lucas: A clear signal from the Fed that they're done hiking, or a decisive drop in the ten-year. Or a policy win on the tariff front. But also, just a better earnings picture. If solar companies can show that demand is holding up despite the financing costs, that could start to decouple them from the macro. But right now, the market is not giving them the benefit of the doubt. Luna: It's almost like the oil rally is putting a floor under inflation expectations, and that feeds back into rates. So the two moves are actually reinforcing each other. Lucas: Exactly. And that's why this feels different than just a normal sector rotation. It's a macro narrative: oil up, rates up, clean energy down. They're all connected. Luna: On that note, I was thinking about how we often talk about these big market moves, and it can feel like it's all just numbers on a screen. But for the listener, there's a real-world impact. The price of gasoline is at four dollars and five cents a gallon, up from four dollars and one cent last week. That's the kind of thing that hits people's wallets directly. Lucas: Absolutely. And that's a big part of why we do this show. We try to make sense of these forces so that when you see a headline or a number, you have a framework for understanding it. And if you've found that useful, there's actually a way to keep it going. We keep this podcast ad-free, and that's only possible because of listener support. If you're one of the people who gets something out of our daily episodes, you can help us keep going at buy me a coffee dot com slash fexingo. It's a small gesture, but it genuinely makes a difference. Luna: Yeah, and honestly, every little bit helps keep us independent. We don't have sponsors pushing a message. It's just us, doing the research and trying to get it right. So if you've ever thought about it, that link is a great way to show your support. Lucas: Right. So back to the energy split. One more angle I want to bring up: the refining story. We've talked about it in past episodes, but it's worth revisiting because it's still relevant. Refining margins have been strong, which is why gasoline prices haven't fallen even when crude was cheaper earlier in the year. Now that crude is climbing again, those margins are getting squeezed from the input side. Luna: So that's the flip side. Oil producers are loving this, but refiners might be feeling the pinch. And that shows up in the stock performance, right? We saw XLE up four and a half percent, but that's the producers. Refiners might be a different story. Lucas: Exactly. And that's the nuance. The energy complex is not one monolithic block. You've got upstream, midstream, downstream. They all have different drivers. So when you see headline oil prices moving, you have to think about who benefits and who doesn't. It's not just 'oil is up, energy is up.' Luna: And that's the kind of insight that gets lost in the daily noise. Listeners probably see 'energy stocks rally' and think it's all the same. But the breakdown matters. Lucas: Yeah. And there's also the geopolitical dimension. The Strait of Hormuz story is a key one. If that escalates, you could see a serious spike in crude, and that would have knock-on effects on inflation, rates, and everything else. We're not in a recession, but we're also not out of the inflation woods. So oil at ninety-three dollars Brent is not the Fed's friend. Luna: Do you think the market is underpricing the risk of an actual conflict? Or is it just that we've seen this movie before and the market has become desensitized? Lucas: I think there's a bit of that. The market has priced in a lot of geopolitical flashpoints over the years, and most of them have ended without a supply disruption. So there's a complacency that builds up. But Hormuz is one of those chokepoints where the stakes are so high that if something happened, the move would be violent. So it's a tail risk that people are aware of, but they're not paying a huge premium for it. Luna: So in a way, the clean energy sell-off might be a bit of a knee-jerk reaction to the oil rally, but the underlying fundamentals are still weak because of rates and tariffs. It's a double whammy. Lucas: Exactly. And that's the honest assessment. If you're a long-term investor in clean energy, you have to be patient. The macro is not supportive right now. But the energy transition is a decades-long story, and one bad quarter doesn't change that. So it's about having a longer time horizon, and also not ignoring the macro signals. Luna: And for the listeners who are thinking about their portfolios, what's the practical takeaway here? Should they be rebalancing, or just staying the course? Lucas: I'm not a financial advisor, but I'd say the key is to understand what you own and why. If you own clean energy stocks, you need to be comfortable with higher volatility and the macro headwinds. If you own oil stocks, you're benefiting from the current trend, but you also need to be aware of the geopolitical risk and the long-term transition. The worst thing is to panic and sell at the bottom, or to chase a rally without understanding the drivers. Luna: That's a good note to end on. It's about having a framework, not just reacting to headlines. Lucas: Exactly. And that's what we're here for. We'll be back tomorrow with more. Until then, keep asking questions.