The oil and gas sector arrived at the start of this week as the year’s runaway winner, sitting on gains exceeding 34 percent since January. By the close on Wednesday, the energy complex was leading the market in the wrong direction, with Exxon Mobil and Chevron both sliding as crude oil fell more than 16 percent in a single session on the back of the US-Iran ceasefire announcement.
That single-day decline was the steepest since April 2020, and it removed a substantial portion of the risk premium that had been embedded in oil prices since February 28.
The structural picture is now more nuanced than the post-ceasefire euphoria suggested. West Texas Intermediate crude settled at $94.41 per barrel on Wednesday, which still represents a 41 percent increase from its level before the conflict began. Oil remains elevated, not normalised. The Strait of Hormuz is not fully open, with Iran continuing to attach conditions to vessel passage and insurance premiums for tanker operators remaining at war-level rates. Saudi Arabia intercepted nine drones on Wednesday despite the ceasefire, and attacks on Gulf infrastructure continued sporadically through Thursday. These are not the conditions of a fully resolved crisis.
Investors who had positioned heavily in energy stocks as a geopolitical hedge are now confronting a decision. The trade that made sense when escalation was the dominant risk now requires a different calculus. If the ceasefire holds and oil drifts back toward $80 or below over the coming months, the sector’s year-to-date gains will erode rapidly. If the ceasefire collapses, oil spikes again and those positions recover their value. That binary dynamic is producing increased volatility and position trimming in the sector.
Goldman Sachs had put out a note on Tuesday arguing that technology stocks had become unusually attractive after their valuation compression, noting that Tech multiples had fallen below those of the broader market.
That framing aged well: tech led Wednesday’s ceasefire rally, with ASML gaining 7.8 percent, Applied Materials 6.8 percent and Meta surging 6.5 percent. Goldman’s recommendation was essentially that the war had over-punished growth stocks for factors that would not persist indefinitely if supply chains normalised.
The earnings season running through the next several weeks will add another layer of complexity. Companies across consumer goods, retail and industrials will be asked to quantify how much of the oil-driven cost increase they expect to pass along to consumers and how much will compress margins. Guidance will be murkier than usual because no company can accurately forecast where fuel costs land over the next two quarters. The market will reward clarity and punish vagueness, creating differentiation between companies with strong supply chain visibility and those without it.