Energy stocks are taking another leg lower Wednesday as WTI crude slid below $88 a barrel for the first time since early April, extending a selloff that has erased nearly all the geopolitical risk premium that built up over the past six weeks. WTI was last at $87.40, down 2.3% on the session and off more than 10% from the $97.50 peak hit just before Memorial Day weekend. Brent crude slipped to $90.12, its lowest level since April 8.
The driving forces are straightforward. The US-Iran ceasefire framework announced Friday has opened the door for Iranian barrels to return to global markets, with analysts estimating 500,000 to 700,000 barrels per day of additional supply within three to six months if sanctions relief follows. Compounding that, the American Petroleum Institute reported a crude inventory build of 3.8 million barrels for last week — well above the 1.2 million barrel draw the market had priced — signaling that domestic demand isn’t keeping pace with production as the summer driving season gets underway.
“The energy trade has completely flipped in the last week,” said Amrita Sen, director of research at Energy Aspects. “We went from pricing in a Strait of Hormuz disruption premium to pricing in a return of Iranian barrels — and the market is front-running that supply by liquidating positions aggressively. The question is whether $85 WTI holds as a floor.”
The Energy Select Sector ETF (XLE) is down 1.8% in midday trading, bringing its weekly loss to 4.2%. ConocoPhillips (COP) is leading the decline, down 3.1%. ExxonMobil (XOM) is off 1.5% and Chevron (CVX) is down 1.2%. Independent producers are bearing the brunt — Pioneer Natural Resources (PXD) has shed 3.6% and EOG Resources (EOG) is off 3.2%. The U.S. gasoline futures complex is also weakening, with RBOB down 2.5% to $2.72 per gallon, which could provide some relief at the pump heading into the summer travel season.
