Energy investors go stock picking, benefiting Chevron over Exxon

By Claudia Assis

Fading optimism in the face of a widening Middle East conflict drags some energy names, but not all

Disruption to global energy supplies has sent crude-oil and natural-gas futures higher.

Disruption to global energy supplies and the prospect of an ever-widening conflict in the Middle East has sent crude-oil and natural-gas futures higher - and exposed subtle differences on how investors treat the stocks of different energy companies.

What matters the most for energy markets is the Strait of Hormuz being essentially closed, and "even more important is the targeting of energy infrastructure both in Iran and its neighbors," Piper Sandler analyst Jan Stuart said. "On top of that, the shooting is far from over."

After a wobbly start Tuesday, shares of Chevron (CVX) resumed their march higher, vying for a fresh record-high close and an unprecedented 11th straight week of gains. Shares of integrated rival Exxon Mobil (XOM), however, were falling.

Meanwhile, crude-oil futures (CL.1) surged 6.7% and natural-gas futures (NG00) climbed 5.4%.

Wall Street has long favored Chevron over Exxon, preferring its management style and, after the U.S. intervened in Venezuela, its position in the South American country.

Chevron has increased its acreage by more than 50%, entering 10 new oil and gas exploration basins in the past two years, analysts at Melius Research highlighted in a recent note about the company. It also snapped up new talent - and new exploration frontiers - when it acquired Hess last year. Its new drilling horizons include wells in "compelling" new areas of exploration, the Melius analysts said - and none of them are in the Middle East.

It also mattered that, before the conflict, both energy and defense stocks had a "pretty good run" since the start of the year, said Luke Rahbari, a portfolio manager with Equity Armor Investments.

"On a portfolio basis for us, I'm not sure if they're going to go up much more," Rahbari said.

The S&P 500's SPX energy sector XX:SP500.10 is up more than 26% so far this year, and on pace for its best three months since the start of 2022, when gains topped 30%.

Other spots of green on investors' screens included U.S. refiners Valero (VLO) and Marathon Petroleum (MPC), and midstream companies such as Targa Resources (TRGP), which focuses on natural gas.

Also gaining were a pair of liquified-natural-gas exporters, Venture Global (VG) and Cheniere Energy (LNG). The companies ship LNG to Europe and other parts of the world from plentiful supplies of U.S. natural gas, with Venture Global rallying another 8% on Tuesday as the company stands to benefit from the jump in natural-gas futures.

Some investors expressed surprise at the advance for U.S. equities on Monday, as it contrasted with worsening headlines throughout the day - including President Donald Trump saying the war with Iran could last weeks, as well as reports of damage to oil infrastructure in some parts of the Middle East.

"I was surprised we didn't see this selloff yesterday," said Nancy Tengler of Laffer Tengler Investments. On Tuesday, markets were reacting to the possibility that the conflict could be more prolonged than expected and that Iran may respond perhaps more forcefully than expected, Tengler said.

Crude-oil futures "spiked" overnight, particularly after reports of a fire sparked by falling debris from an intercepted drone at the United Arab Emirates port of Fujairah, to the southwest of the Strait of Hormuz, analysts at Mizuho noted. "The attack obviously is an Iranian attempt to eliminate the option for the UAE to send barrels around the strategic chokepoint," they said.

-Claudia Assis

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03-03-26 1236ET