Oil surges past $85 but energy stocks lag as Goldman doubts US Hormuz measures
WTI climbs to highest since July 2024 while XLE underperforms, signaling market uncertainty over Iran conflict
Crude oil prices surged to their highest levels since summer 2024 on Friday as an escalating conflict with Iran shut down shipping through the Strait of Hormuz, but energy stocks failed to keep pace, highlighting growing uncertainty about how long the disruption will last.
West Texas Intermediate crude settled at $81.01 per barrel, gaining 8.5% and marking its highest close since July 2024. Brent crude settled at $85.49 per barrel, up 4.9%. The surge came after Iran claimed "complete control" over the strategic waterway through which approximately 20% of global oil supply passes.
Yet the Energy Select Sector SPDR Fund (XLE), which tracks U.S. energy companies, was essentially flat at $56.50 in early Friday trading, dramatically underperforming the commodity itself. This disconnect has raised eyebrows among market analysts, who note that energy stocks typically rally in tandem with crude prices during supply shocks.
"The oil market is not yet confident in US measures to stabilize Hormuz," analysts at Goldman Sachs wrote in a note to clients Friday. The bank warned that while the U.S. has signaled readiness to deploy naval escorts for commercial tankers, investors remain skeptical about how quickly normal operations could resume.
The broader equity market sold off as oil prices climbed. The S&P 500 fell 1.3%, the Dow Jones Industrial Average dropped 1,020 points, and the Nasdaq composite declined 1.2%. Airlines were among the worst performers, with American Airlines, United Airlines, and Delta Air Lines all posting sharp losses as investors fretted about rising fuel costs.
Goldman Sachs raised its second-quarter Brent forecast to $76 per barrel from $66, and lifted its WTI outlook to $71 from $62. However, the bank cautioned that if volumes through the Strait of Hormuz remain at current reduced levels for an additional five weeks, Brent prices could reach $100 per barrel.
The energy sector has been one of the market's strongest performers this year, with XLE surging more than 25% year-to-date through early March. However, the fund declined 0.7% on March 5 even as oil prices continued climbing, suggesting investors may be positioning for either a swift resolution to the Hormuz crisis or a prolonged period of elevated volatility.
Higher oil prices are also raising concerns about inflation, potentially delaying interest rate cuts by the Federal Reserve and putting pressure on consumer spending. Retail stocks and smaller companies with less pricing power also declined in Friday trading.
Maritime traffic through the Strait of Hormuz has plummeted by up to 80%, with hundreds of commercial vessels either trapped within the Persian Gulf or waiting outside the passage. Major shipping companies have either restricted or ceased bookings through the region, adding to supply chain disruptions that began with the crisis.