ConocoPhillips: The False Narrative That Oil's 'Phase II' Bull Market Is Just Beginning

The "Phase II of the biggest oil bull market" thesis is the kind of false narrative I've seen before — one that mistakes a geopolitical price spike for structural demand and then invites you to chase the stock into a cliff.

Here is what actually happened in ConocoPhillips' second quarter. The company reported $3.9 billion in net income and $3.24 in adjusted earnings per share, nearly double the $1.42 adjusted EPS a year earlier. The stock is up 25.6% year-to-date. Wall Street responded with upgrades and the sort of headline you're reading about now.

The problem is that 100% of that earnings beat came from price, not production. ConocoPhillips' average realized price jumped 36% year-over-year to $62.33 per barrel of oil equivalent, while total production fell 6% to 2.248 million BOE per day from 2.391 million. Lower 48 organic growth was offset by disruptions to Qatar operations from the Middle East conflict and higher royalties at Surmont. A company that is producing less but earning more because oil prices spiked is not an investment thesis — it's a timing coincidence.

That timing is about to change. The Iran conflict that closed the Strait of Hormuz in late February — temporarily removing up to 11.2 million barrels per day of transit capacity and spiking Brent crude to over $107 per barrel in April — has been resolved. The US and Iran signed a memorandum of understanding on June 18 to reopen the strait. The EIA now expects most of that disrupted supply back online by the end of 2026, with only 1.4 million barrels per day still shut-in in the fourth quarter.

The EIA's updated Short-Term Energy Outlook, released July 7, projects Brent falling from its second-quarter average of $103 per barrel to $70 per barrel in the fourth quarter of 2026 — a $19-per-barrel downgrade from its own previous forecast. The 2027 Brent forecast was slashed even further, from $79 to $65 per barrel. The market is expected to return to its pre-conflict oversupply state.

OPEC's own July 13 monthly report lowered its 2026 global demand growth forecast to 780,000 barrels per day, marking the third consecutive downward revision. The IEA went further, projecting actual global demand decline in 2026.

So the narrative that a "Phase II" oil bull market is beginning is exactly backward. The first phase — driven by a geopolitical chokepoint that shut the world's most important oil transit artery — is over. What's coming next is a return to the abundance that has defined global oil markets for the past decade. Fracking and horizontal drilling in the Permian, Eagle Ford, and Bakken have structurally increased US supply. OPEC+ still holds spare capacity. The demand outlook is weakening, not strengthening. The EIA expects global oil inventories to build by an average of 2.7 million barrels per day in the fourth quarter and 5.0 million barrels per day through 2027. That is not the supply picture of a bull market. That is the supply picture of falling prices.

Now let's look at what ConocoPhillips is actually worth at $117.61 per share, with its 25.6% year-to-date gain already baked in.

The company trades at 15.2 times trailing earnings and 14.7 times forward earnings — cheap on paper, but only because the trailing denominator still includes the low-price quarters from before the Hormuz closure. Forward earnings of 14.7x price in continued elevated commodity prices, which the EIA, OPEC, and IEA all now expect to decline. EV/EBITDA of 5.8x looks compelling until you compare it to where it's headed if Brent drops from $107 to $70 — EBITDA collapses with it, and that multiple stops looking cheap.

Free cash flow has been strong. Trailing-twelve-month FCF is $10.06 billion, up 45.4% year-over-year. Operating cash flow for the quarter alone was $7.2 billion, with $3.0 billion returned to shareholders — $1.0 billion in dividends and $2.0 billion in share repurchases, which management doubled from the prior quarter. The dividend yield is 2.875%, with a payout ratio of 55%, and management has reaffirmed its target of returning 45% of annual FCF to shareholders. The balance sheet is clean: $58.9 billion in total debt against $65.4 billion in equity, for a debt-to-equity ratio of 35.6%. Current ratio is 154%.

That capital allocation framework is solid. It's just built on a commodity price assumption that is unwinding, not accelerating.

Despite all of that operational discipline, I believe ConocoPhillips is being mispriced by a market that is confusing a one-time geopolitical shock with structural tailwinds. The dividend is safe — the payout ratio gives management breathing room, and the balance sheet can withstand a price drawdown. But the stock's 25.6% year-to-date run has been funded by prices that the EIA now projects will fall nearly 40% from their peak before recovering. When realized prices drop from $62 per BOE back toward the $50-to-$55 range that existed before the Hormuz closure, Q3 and Q4 earnings will print materially lower than Q2, and the street will be forced to downgrade — reversing these upgrades before the dust settles.

That being the case, I rate ConocoPhillips a Hold. The 2.9% yield provides a floor, and the balance sheet is genuinely strong. The company's decision to sell $1.7 billion in noncore Lower 48 assets and reaffirm its $7 billion annual FCF target by 2029 shows real operational discipline. But the stock has run hard into the exact commodity tailwind that is about to reverse. Buying ConocoPhillips here is not positioning for a bull market Phase II — it's buying into the final quarter of elevated prices before the supply normalizes and the earnings power that justifies these earnings multiples comes back down to earth.

For income-focused investors already holding COP, the yield and balance sheet quality justify staying put. For new buyers looking for energy exposure, I'd wait for the commodity cycle to do its work and the stock to reflect a $65-to-$70 Brent reality. When it does, the same fundamentals that now support a Hold will support a Buy — just at a lower entry price.