There is a peculiar tension in energy markets right now. The global oil market is widely expected to remain oversupplied in 2026. And yet, the S&P 500 Energy sector has emerged as the top-performing segment of the entire index this year. As of early February, the sector had surged by nearly 20% year to date, a performance that beat the broader S&P 500 by roughly 18 percentage points. For anyone expecting a glut to punish energy investors, the market is sending a confusing signal.
The explanation lies not in the supply numbers but in everything they cannot capture. We explore this tension in this week’s newsletter.
The Supply Glut That Keeps Getting Disrupted
Let’s start with the oversupply argument because it is real. Fitch Ratings projects that global oil supply will overwhelm demand growth this year, and as a result, the firm assumes that Brent crude will settle around $63 per barrel. And on March 1, eight OPEC+ members agreed to add 206,000 barrels per day to supply from April; the beginning of what could eventually restore 1.65 million barrels per day of previously withheld production. The group had paused hikes for the first quarter of 2026 due to seasonal weakness. Now, with the second quarter approaching, they are stepping back in.
But the actual picture is messier. Outages in North America and Kazakhstan, sanctions cutting off Russian and Iranian barrels from most buyers, and supply chain disruptions have repeatedly nibbled at what was supposed to be a straightforward surplus. OPEC itself has held its 2026 demand growth forecast steady for seven consecutive months. If anything, this move signals confidence in consumption trends. In short, the glut exists, but it keeps running into something.
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When Risk Becomes a Price Floor
That something, most immediately, is geopolitics. Starting on February 28, the US and Israel launched attacks on Iran in an operation they have dubbed ‘Epic Fury’. And in the early innings of the hostilities, the Iranian Revolutionary Guards confirmed that the invaders had killed the Islamic Republic’s Supreme Leader. They began retaliating immediately.
The hostilities raised the stakes in the Persian Gulf. Now, navigation through the Strait of Hormuz has been disrupted. The Strait is a chokepoint through which roughly one-fifth of the world’s oil supply passes. Ben Cahill, a nonresident senior associate in the Energy Security and Climate Change Program at the Center for Strategic and International Studies, noted in an article for Barron’s that “more than 200 tankers are idling on both sides of the strait, leaving Iraq, Kuwait, and Qatar unable to transport crude oil and petroleum products.”
As a result, the market is increasingly focused not on how many barrels exist on paper, but on whether they can actually move. And the risk premium embedded in current prices reflects this anxiety. For instance, Forbes estimates the premium at $7 to $12 per barrel, and Reuters puts it between $4 and $10. Without that premium, analysts say, crude would likely trade in the low $60s. Julius Baer’s Norbert Rucker acknowledged this directly: “Oil prices are inflated by a significant geopolitical risk premium.” He added, though, that “tensions with Iran should be temporary, and as the focus shifts, the ongoing supply surplus and persistent price pressures will come into play.” That caveat matters, and we will return to it.
On the other hand, ING revised its 2026 Brent forecast upward in late February, noting that more extensive US military action could take Iranian oil supply fully offline. This is a scenario that, if combined with a Hormuz blockade, could push Brent toward $140 per barrel. Markets are not pricing that extreme, but they are pricing a world where that tail risk has not gone to zero.
Why Energy Stocks Are Winning
But oil prices tell only part of the story for equities. MarketWatch reported in February that while crude’s near-10% rise has helped, the deeper reason for the sector’s outperformance is that investors are rotating toward what Tortoise Capital’s Rob Thummel calls “indispensable assets that are difficult to substitute.” This maps closely to the broader HALO effect, which is the shift toward Heavy Assets, Low Obsolescence stocks that has defined early 2026 across materials, industrials, and energy alike.
And for Goldman Sachs, energy stocks are winning because of “positive GDP revisions, a broader tech rotation, and positive oil momentum amid smaller-than-expected surpluses.” Among its top picks, Viper Energy stands out for its mineral royalty model and shareholder return commitments. On the other hand, EQT Corp’s low-cost structure generates compelling free cash flow even in softer natural gas pricing environments. These are not bets on oil at $100 but bets on cash flow visibility.
Bottom Line
Energy stocks are not winning despite the oversupply story. They are winning because every mechanism that should let that surplus fully materialize, including clean production ramps, unobstructed shipping lanes, and no geopolitical shocks, keeps getting interrupted. As long as a barrel of oil can be threatened before it reaches a buyer, the risk premium holds. And as long as that premium holds, disciplined energy companies with strong balance sheets and shareholder return programs have room to keep delivering.
But that is not to say that the oversupply won’t eventually bite. It will. The question is when, and whether investors will still be holding when it does.
