- Brent crude oil is back at $100 a barrel
- Markets continue to price in a diplomatic solution and a return to lower oil prices
- The MOVE and VIX bond and equity volatility indices remain subdued
- Oil stocks remain relatively unloved, as measured by their weightings within major indices
- The danger therefore is tensions between Washington and Tehran linger, or even escalate again
“The price of Brent crude oil is nudging the $100-a-barrel mark again, as the second round of talks between Washington and Tehran fails to materialise, the blockades in the Strait of Hormuz remain in place and America’s ultimate Middle Eastern strategy remains somewhat unclear,” says AJ Bell investment director Russ Mould.
“However, markets are still pricing in a relatively speedy and peaceful settlement, which quickly brings down the oil price, judging by not only how the commodity is trading, but the lack of activity in leading measures of volatility and how oil stocks remain relatively unloved in the broader context of global stock markets.
“Despite ongoing tensions between the USA and Israel on one side and Iran on the other, the damage already done to oil and gas production capacity and the disruption to shipping through the Strait of Hormuz, the price of Brent crude oil still stands below its high for this year, let alone 2008’s peak of $147 a barrel. On an inflation-adjusted basis, oil is lower still relative to the high of two decades ago in real terms.
“This suggests financial markets feel that the start of talks means the worst of the conflict is behind us, and that a diplomatic solution will end the war, open the Strait of Hormuz and permit oil and gas to flow freely once more, bringing down the price of these commodities in the process.
“Stock markets have rallied and recaptured most, if not all, of the losses suffered when the war in Iran began, and the VIX, or ‘fear’ index, which measures anticipated share price volatility in the USA stands almost at exactly where it did when America and Israel first struck on 28 February.
“The US bond market also seems relatively supine. The MOVE index, which does for fixed income what the VIX does for equities, stands below where it did before the start of the conflict, to again suggest investors do not expect a long war or oil and gas prices to hold on to the gains made this year.
Source: LSEG Refinitiv data
“Granted, the share prices of the major oil and gas producers have responded, as investors have sought some form of hedge, just in case.
“The S&P Global 1200 Energy index stands at an all-time high.
Source: LSEG Refinitiv data
“So does the S&P 500 Energy benchmark in the USA.
Source: LSEG Refinitiv data
“In the UK, shares in Shell also reached a new peak in 2026, while even BP has finally got within touching distance of the high set back in early 2006 as investors have responded pragmatically to the company’s decision to refocus its attention, and capital, toward maximising the value of existing hydrocarbon assets.
Source: LSEG Refinitiv data
“But investors still seemed unconvinced by the long-term case for oil and gas, even if we live in a world where hydrocarbons are still the dominant source of power in world where, in its crudest form, economic activity is simply energy transformed.
“Across the FTSE 350 index overall, energy stocks represent 10% of the benchmark’s total stock market capitalisation. That compares to a twenty-plus-year average of 13.6% and an all-time high north of 20%.
“Investors seem content to embrace oil and gas stocks just in case the war goes on, but they do not seem to believe it will, and also remain concerned that oil and gas fields could yet prove to be a wasting, or stranded, asset over time, should the globe successfully pivot to renewable and alternative sources in an effort to meet Net Zero emission targets.
Source: LSEG Refinitiv data
“Energy stocks represent just 3.9% of the S&P Global 1200’s total valuation, way below this century’s average of 7.6% and the 2007 peak of 14%.
Source: LSEG Refinitiv data
“The picture is the same in the USA. The S&P 500 Energy sector represents just 3.4% of the S&P’s 500’s total stock market valuation of $60.5 trillion, way below both the historic average and peak when oil hit its own lifetime high of $147 a barrel.
Source: LSEG Refinitiv data
“All of that said, energy stocks have gently outperformed since early 2021, to suggest investors are a little more wary of ignoring oil and gas producers on the grounds of environmental, social and governance (ESG) alone, even if they are still not wholly convinced by the long-term economics of the industry.
“It is possible, after all, to buy all of America’s oil majors for $2 trillion, a figure that is lower than the stock market valuation of each of NVIDIA, Alphabet, Apple, Microsoft and Amazon and one that Broadcom also matches on its own as well.
“The ongoing enthusiasm for all matters technological, and Artificial Intelligence-related, means oil companies remain relatively unloved in the USA in particular.
“Latin America and the UK offer the highest weighting to energy, and commodities more generally, so if the price of oil and gas, and other raw materials, remain elevated they may yet offer investors something that America cannot. It may not be a total coincidence that Brazil’s BOVESPA index and the UK’s FTSE 100 have both outperformed the S&P 500 in 2026 to date.
Source: FTSE Russell, MSCI, Nikkei Inc, Standard & Poor's and Stoxx
“The challenge for investors who are heavily exposed to tech and the USA, and less so to Latin America, the UK and oil and gas and commodities more widely is how to react should the war in the Middle East escalate, or the time frame needed to establish a lasting peace prove longer than markets expect. A sustained period of oil and gas price strength is simply not priced in as everyone seems to expect a speedy and peaceful resolution.
“While this is what everyone wants for so many reason, humanitarian ones first and foremost, under these circumstances it may be worth bearing in mind the assertion of American General George S. Patton that, ‘If everyone is thinking alike, then somebody isn’t thinking.’
“The dash to cast aside oil and gas producers as yesterday’s companies led to the relegation of ExxonMobil from the Dow Jones Industrials in August 2020. After 92 years as a member, ExxonMobil made way for Salesforce.
“Since then, ExxonMobil’s shares are up by 271%. Those of Salesforce are down by a third.”
Source: LSEG Refinitiv data
