Latest / Energy Economics with Fexingo: Oil Prices, Renewables, and the Cost of Power / How Falling Inflation Is Reshaping Energy Stock Bets
Transcript
- Lucas: So we got the June CPI print last week — headline inflation at 332.6, down from 333.98 in May. That's the third straight month of cooling. Luna: And core CPI basically flatlined at 336.1. I think the market finally started to believe the Fed might actually be done. Lucas: Right. The ten-year breakeven inflation rate dropped to 2.25 percent. That's the lowest in about eighteen months. And what's interesting to me is how that's feeding through into energy stocks. Luna: You mean the split we keep seeing — oil stocks rallying while clean energy ETFs lag? Lucas: Exactly. XLE, the energy sector ETF, is up 2.6 percent over the last five days. XOP, the exploration and production ETF, up 2.9 percent. Meanwhile ICLN, the global clean energy ETF, is down 1.2 percent. Enphase down 2.3 percent. First Solar off 1.4 percent. Luna: But the usual narrative is that when inflation falls, growth stocks — including clean energy — should benefit because the discount rate drops. So why aren't they? Lucas: That's the puzzle. And I think it comes down to a shift in what investors are pricing in. Oil isn't rallying because of inflation fears anymore. It's rallying because of supply constraints — the Strait of Hormuz toll proposal, OPEC+ discipline, US production growth slowing. Luna: So the old 'commodities as inflation hedge' trade is unwinding, but the commodity itself still has a reason to go up. Lucas: Right. Meanwhile, clean energy stocks were priced for a world where inflation keeps falling and rates keep falling. And that world is happening — but maybe slower than hoped. Core PCE is still at 130.1, up month over month. The Fed hasn't cut yet. Luna: So it's a timing mismatch. The macro tailwind is there, but it hasn't fully arrived. Lucas: Exactly. And that creates this weird moment where oil stocks look like they're thriving on their own micro stories, while clean energy is waiting for a macro catalyst that keeps getting postponed. Luna: Let's talk about the numbers for a second. ExxonMobil is up 4.4 percent in five days. Chevron up 3.8 percent. Those are big moves for mega-cap energy. Lucas: And WTI crude is at 79.25 a barrel — up 11 percent in a week. Brent at 84.72. That's a serious spike. The fundamentals are tightening. But the inflation backdrop means it's not triggering a panic about the broader economy. Luna: Which is actually kind of ideal for energy equities. Higher oil prices, but not because of demand overheating or supply shock fears that crash the rest of the market. Lucas: Exactly. And natural gas tells a different story. Henry Hub at 2.83 per MMBtu — essentially flat over the past week. The oil-gas decoupling we talked about a few episodes back is still intact. Luna: So if an investor is looking at this environment and saying 'inflation is cooling, I want to position for that,' what's the move in energy? Lucas: I think you have to split the difference. The oil names are running on their own supply-driven momentum. That could continue if the Hormuz situation escalates or OPEC+ stays disciplined. But if inflation continues to fall and the Fed eventually cuts, the clean energy names could catch a bid quickly. Luna: That's a tough call to make with conviction right now. Lucas: It is. And look, if walking through the economy with us has made something click — if you've ever been in a conversation and pulled out a CPI number or an oil price stat that you heard here — that's exactly what we hope for. Luna: Yeah, honestly, listener support is what keeps this show ad-free and independent. A couple of dollars a month genuinely makes a difference. Lucas: If you've gotten value out of the episodes, buy me a coffee dot com slash fexingo — that's it. No tiers, no perks, just knowing you're keeping the lights on. Luna: Alright, back to it. So if someone is holding both Exxon and Enphase right now, what should they be watching? Lucas: For Exxon, watch the brent wti spread and any news out of the Middle East. For Enphase, watch the ten-year yield and the next CPI print. Those two stocks are being driven by completely different playbooks. Luna: Which is actually a helpful way to think about the whole sector. You can't just say 'energy is doing well' or 'energy is struggling.' It's fragmented. Lucas: Completely. And the inflation data is the common thread, but it hits each sub-sector differently. Lower inflation helps clean energy on the cost of capital side. But it also reduces the urgency for oil as an inflation hedge. Luna: So the oil rally we're seeing now is more about supply constraints than macro positioning. Lucas: Right. And that means if the supply story fades — if the Hormuz toll gets negotiated down, if OPEC+ starts cheating on quotas — the support for oil stocks could weaken fast. Meanwhile, clean energy is waiting for rates to actually come down. Luna: What's your best guess on timing? Are we looking at a Fed cut this year? Lucas: The market is pricing in a first cut at the September FOMC meeting, with maybe another in December. The CPI data supports that. But the Fed has been cautious — they want to see sustained disinflation, not just a couple of months. Luna: And if they cut, what happens to natural gas stocks? They've been kind of stuck. Lucas: Natural gas is more of a domestic supply story right now. Production is still elevated from last year, and storage inventories are healthy. A rate cut would help the equity valuations generally, but the commodity price itself is driven by weather and storage data. Luna: So for listeners trying to make sense of the energy landscape in July 2026, the key takeaway is: don't treat energy as a monolith. Oil stocks, clean energy, and natural gas are all responding to different forces. Lucas: And the macro environment — falling inflation — is a tailwind for some and a neutral for others. The old rules of thumb are breaking down. Luna: Which makes this a really interesting time to be watching the space, even if it's a bit frustrating for investors looking for a simple story. Lucas: Exactly. Simple stories are usually wrong. Right now, the data gives you a nuanced picture — and that's where the real opportunity lies.