Energy sector faces pressure as Trump extends Iran strike pause
Geopolitical risk premium unwinds with April 6 deadline, XLE trades at overbought levels
The US energy sector faces fresh pressure after President Donald Trump extended a pause on strikes targeting Iranian energy facilities to April 6, reducing near-term supply disruption concerns that had propelled oil prices sharply higher this month.
Trump announced the extension on Thursday, citing ongoing talks with Tehran that are progressing "very well," according to multiple reports from CBS News and The Guardian. The decision comes just days after the administration issued a 30-day waiver allowing the sale of approximately 140 million barrels of sanctioned Iranian crude already stored at sea, a move aimed at stabilizing surging oil prices.
The Energy Select Sector SPDR Fund (XLE), which tracks major US energy companies including Exxon Mobil and Chevron, is trading around $60.54 per share as of March 25—close to its 52-week high of $61.47 and up roughly 13% from its 50-day moving average. The fund's Relative Strength Index sits at 72, indicating overbought conditions that typically precede corrections.
Oil prices had surged approximately 50% since late February as conflict in the Middle East intensified and disruptions threatened key supply routes including the Strait of Hormuz. However, the XLE's performance has recently been described as "muted" despite continued crude oil price increases, according to Benzinga analysis. This tempered response reflects the diversified revenue streams of major energy holdings, which include refining, chemicals, and trading operations beyond crude extraction.
Investors appear to be pricing out some of the geopolitical risk premium that had built up in energy markets. The temporary nature of Trump's pause—extending just 11 days—maintains uncertainty, but the reduced immediacy of military action targeting Iranian energy infrastructure removes a key catalyst supporting elevated energy valuations.
Technical analysts note that while an RSI above 70 traditionally signals overbought conditions, strong uptrends can sustain elevated readings for extended periods. However, the combination of stretched technical positioning and diminished geopolitical risk creates a setup for potential near-term pressure on energy sector valuations.
The April 6 deadline will likely remain a focus point for energy traders, as any deterioration in US-Iran talks could rapidly re-introduce supply disruption concerns and support oil prices. Until then, the energy sector faces headwinds from both unwinding risk premiums and technical factors that suggest the recent rally may be due for consolidation.