By Laura Sanicola
Brent crude futures weren't reacting much to news over the weekend that negotiations between the U.S. and Iran had hit snags. Virtually no vessels were reported to have crossed the Strait of Hormuz on Sunday. Yet Brent futures for August delivery were up only 1% to $81.
The muted reaction may reflect the fact that markets knew this would happen. And Brent had already fallen hard, including a 6% decline last week. The core question remains the same: when will tankers really be able to move freely through the Strait, getting global oil and gas supplies back to normal?
Before the talks bogged down, Wall Street had been forecasting a normalization later this summer. Goldman Sachs last week estimated that Gulf exports will gradually increase by 13 million barrels a day, reaching 70% of prewar levels by the end of July with Gulf production returning to normal in October.
Assuming a deal is signed, a non-trivial amount of Iranian crude will also make its way to the market. Iran is supposed to get sanctions relief and a waiver for crude exports (and petrochemicals), potentially "unlocking" over 50 million barrels of Iranian oil for immediate delivery, Goldman estimates.
Postwar demand also looks less certain. Asian and European countries have been offsetting the oil crunch through EV adoption, fuel-switching, conservation, and increased investment in other energy sources such as renewables and coal -- all negative for oil consumption.
Global petroleum reserves will need to be refilled, but after that a glut may come back. The International Energy Agency estimates a 2027 average global surplus of five million barrels per day, prompted by eight million barrels per day of supply growth and weaker demand as countries like China scale back on oil imports.
So what's the outlook for energy stocks? Mixed. Shares of oil and gas producers are likely to rally on signs the Strait will remain closed for longer, but that could quickly evaporate once a real peace deal emerges.
Against that backdrop, investors can still get attractive valuations on many companies based on free cash flow yields, dividends, and asset values. Even with oil in the $70s, there should be ample cash to maintain dividends and share buybacks.
Here's a look across the sector and some areas to consider.
Supermajors: The Most Durable
Companies like Exxon Mobil, Chevron, BP and Shell look especially durable with crude in the low $70s. The supermajors are some of the most efficient producers and their vast petrochemical, refining, and trading operations could help offset falling crude prices.
A decade ago, lower oil prices almost always led to lower production and weaker cash generation, but that's not the case today. Analysts estimate the group will generate $240 billion of operating cash flow next year -- down from $270 billion in 2026, but still healthy.
Exxon has some of the highest production growth, expected to increase output from 4.7 million barrels of oil equivalent a day this year to more than 5.1 million in 2027 as its operations in Guyana and the Permian continue growing. Chevron's growth is holding flat at around four million barrels a day, but it has secured supplies with its Hess acquisition, the expansion of its Tengiz, Kazakhstan oilfield, and U.S. shale growth.
For European producers, the gas businesses may prove even more important.
Shell and TotalEnergies are among the world's largest LNG suppliers, giving them substantial exposure to global gas markets. European gas prices are expected to fall 20% next year, but free cash flow estimates for Shell should decline only 8%, according to consensus forecasts. TotalEnergies would be harder hit with free cash flow down 17%.
The Europeans tend to pay higher dividends, while U.S. supermajors usually yield less but have higher production growth.
Ben Cook, portfolio manager at the Hennessy Energy Transition Fund, suggests owning Exxon and Chevron as the best of the bunch.
E&Ps: Priced for $70 Oil
Exploration and production companies take the biggest hits from weaker oil prices, but they're also cheap on 2027 profit estimates and free-cash flow yields, assuming oil in the $70s and natural gas at $3.50 per mmBtu.
With 12-month WTI futures averaging $72 and Henry Hub gas around $3.50, oil-focused producers trade at an average 13% free cash flow yield, estimates analyst Matt Portillo, at Tudor Pickering and Holt.
Even if Brent falls to $70 and stays there for the next couple of years, producers like Diamondback Energy, Ovintiv, and APA would still generate a 10% free cash flow yield, according to our analysis of FactSet estimates. ConocoPhillips and EOG would be at 8% to 9%, but still highly cash generative.
Cook owns Exxon Mobil, Diamondback, Expand Energy, and Antero Resources. The latter two are natural gas and liquids-focused producers that look a bit cheaper than oil-focused names, he said in an interview. The market is focusing on soft summer weather and weak near term gas prices, undervaluing growth later this decade from LNG exports and data center demand, he adds.
Front-Month Brent Futures Have Slumped
Refiners: Goodbye, Peak "Crack Spreads"
U.S. refiners were some of the biggest winners from the Iran conflict. They ramped up output to make up for stranded volumes of gasoline, diesel and jet fuel, benefiting from every fear of shortages.
Even with the Strait reopening, U.S. gasoline inventories are still 14 million barrels below their five-year average, while diesel inventories remain 16 million barrels below normal. Commercial crude inventories have fallen for eight consecutive weeks, and refinery utilization is running near 97%, one of the highest rates of the year. The incentive to rebuild inventories ahead of another potential conflict will be high.
Their margins, however, may have peaked.
Several Asian refineries were forced to reduce runs or shutter units because they couldn't access Middle East crude, curtailing two million to six million barrels a day of utilization. As Hormuz shipping normalizes, additional gasoline, diesel and jet fuel supplies are likely to re-enter the market.
"Crack spreads," a measure of refinery operating margins, may not collapse, but they aren't likely to go back to peaks during the war. That means profit estimates for the group are likely to come down.
"That's one area we'd avoid now because there's too much uncertainty around what happens with a deal and supplies," says Hennessy's Cook.
Companies such as Valero, Marathon Petroleum and Phillips 66 should continue generating strong cash flow. But they're more sensitive than the rest of the sector to Middle East supplies returning.
Four Ways to Play Post-War Energy
Midstream and LNG: The Export Trade Survives
Pipelines and LNG exporters occupy the messy middle ground of the post-Hormuz trade. They aren't as exposed to falling crude prices as oil producers, but they aren't immune to lower international energy prices either. The Alerian Energy Infrastructure ETF gave up 4% last week.
But individual companies -- especially those tied to natural gas -- have growth in the pipeline thanks to rising U.S. production, gas-fired power demand, and export volumes continuing to grow. Low $70s Brent isn't enough to derail that.
LNG is more complicated.
International gas prices have retreated 16% as traders bet on the possibility for 80% of Qatar's capacity to come online within weeks.
One of the most insulated producers is Cheniere. The company has a large operating platform with most of its volumes contracted under long-term agreements. That makes its cash flow less sensitive to short-term swings in global gas prices. Venture Global and NextDecade have more riding on spot prices, future LNG margins, and project execution.
A reason to stay bullish would be that LNG importers will be looking for alternatives to Qatar, the giant producer in the Middle East.
Qatar's export disruptions may become "forever part of the marketing pitch" for U.S. LNG exporters, says Simon Lack, an energy investor and found of SL Advisors. Buyers will likely care more about reliability, diversification and political risk, he adds.
One caveat is that LNG exporters are still at the mercy of demand in Asia and Europe. If those buyers decide the war was a temporary scare and see lower international LNG prices settling in, they could refrain from more long-term contracts with U.S. suppliers.
Conversely, another flare-up in the Middle East would tilt the pendulum back to U.S. producers, keeping the export buildup alive and well.
Barron's Energy Roundup
Regulate This Last week, the Federal Energy Regulatory Commission took its most consequential step yet to bring order to the data center boom.
FERC ordered the six regional grid operators under its jurisdiction to fix rules for connecting data centers, factories, and other large power users to the grid. The regulators aims to make those connections faster while ensuring that large tech companies help pay for it. Grid operators have 60 days to respond.
It's one of FERC's biggest moves on power access since December, when the agency told grid operator PJM to write clearer rules for data centers that want to plug directly into nearby power plants. That order helped move those power supply deals forward, but made clear they need guardrails so ordinary customers aren't left paying for grid upgrades or more reliability risk.
Data center requests have flooded utility and grid capital plans. But commitments tied to projects unlikely to proceed can inflate forecasts. That creates a risk that ordinary customers pay for grid upgrades tied to data centers that never materialize.
The market senses trouble. Investors have soured on incumbent independent power producers as regulators and grid operators scrutinize how data centers connect to the grid, how much new transmission should be built for them, and who should pay for it.
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June 22, 2026 05:55 ET (09:55 GMT)
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