Energy Stocks Surge Ahead of Thursday's Open Amid Geopolitical Tensions and Oil Price Rebound

The energy sector is once again in the spotlight as geopolitical tensions and shifting supply dynamics drive pre-market gains for key stocks. Crude prices rebounded sharply on Thursday, with WTI climbing to $64.68 per barrel and Brent reaching $67.96—a 3.5% and 3.2% increase, respectively—amid U.S. sanctions targeting Iranian oil exports to China and ongoing Middle East instability. This rally has fueled optimism among investors, though lingering risks, from trade wars to OPEC+ compliance issues, keep volatility in check.

Geopolitical Tensions Ignite Oil Price Rebound

The resurgence in crude prices is being fueled by a combination of supply constraints and regional conflicts. New U.S. sanctions on Iranian oil shipments to Chinese refineries, such as Shengxing Chemical, have tightened global availability. Meanwhile, reports of a U.S. strike on a Yemeni oil port—a flashpoint in the Iran-backed Houthi conflict—have added to supply uncertainty. These factors have offset concerns over slowing global demand, with the IEA projecting a 400,000 b/d downward revision for 2025 oil demand growth due to trade tensions.

OPEC+ Compliance Struggles Cloud Long-Term Outlook

While OPEC+ announced a May production increase of 411,000 b/d, compliance remains a critical issue. Kazakhstan, Iraq, and the UAE are among the nations exceeding their quotas, with total output hitting 41.64 mb/d in March—1.12 mb/d above targets. This overproduction could undermine the alliance’s efforts to stabilize prices. The IEA now forecasts Brent to average $68/b in 2025, down from earlier estimates, as non-OPEC supply growth (led by Brazil, Guyana, and Canada) offsets cuts.

U.S. Shale Sector Faces Structural Headwinds

Despite the price rebound, U.S. shale drillers remain under pressure. Brent’s proximity to $65/b has fallen below the $65/b breakeven point for many producers, per the Dallas Fed survey. Combined with Chinese tariffs on U.S. ethane and LPG, this has prompted a 150,000 b/d downward revision to 2025 U.S. oil supply growth. Valero’s planned shutdown of its Benicia refinery (170,000 b/d capacity) further underscores structural shifts in refining capacity, complicating crude demand dynamics.

Trade Wars and Tariffs: A Double-Edged Sword

The U.S.-China trade war continues to reshape energy markets. China’s halt of U.S. LNG imports and 34% retaliatory tariffs on U.S. goods have disrupted traditional trade flows. Asian buyers like Thailand and South Korea are now leveraging U.S. energy products to counter tariffs, creating new opportunities for exporters. However, the 18% year-on-year drop in Mont Belvieu propane prices to $0.80/gal highlights the uneven impact of these policies on specific commodities.

Spotlight on Energy Transfer LP (ET): A Microcosm of Sector Dynamics

Energy Transfer LP (ET) exemplifies the sector’s resilience and challenges. On Thursday’s regular trading session, ET closed at $17.11—up from $16.82 the prior day—on 10.2 million shares traded. This followed a volatile week, with the stock swinging between $14.90 and $16.99. The high volume reflects investor scrutiny of ET’s infrastructure exposure, including its pipelines and LNG terminals. However, the company faces headwinds from regulatory scrutiny and the broader sector’s reliance on oil prices.

Risks Ahead: OPEC+ Non-Compliance and Geopolitical Wildcards

While the pre-market surge reflects optimism, risks remain. A potential Iranian nuclear deal could unleash 1–2 mb/d of additional supply, overwhelming OPEC+ efforts to balance the market. Meanwhile, Russia’s continued ship-to-ship transfers of Urals crude to India—despite G7 price caps—adds to supply-side unpredictability. Investors must also monitor U.S.-China tariff negotiations, which could either stabilize trade or trigger further disruptions.

Conclusion: A Sector in Transition, but Still Rewarding for the Resilient

Energy stocks’ pre-market gains on Thursday underscore the sector’s dual role as both a geopolitical barometer and a structural play on global demand. While oil prices and geopolitical events drive short-term momentum, long-term investors must weigh OPEC+ compliance risks, U.S. shale’s breakeven challenges, and the energy transition’s slow march toward renewables.

The data paints a nuanced picture:
- Oil prices are up 7% week-on-week, but remain historically low, reflecting demand concerns.
- OPEC+ overproduction could negate planned supply cuts, keeping a lid on prices.
- ET’s performance mirrors the sector’s volatility—up 1.8% Thursday but down 5% year-to-date.

For now, the sector’s defensive appeal (e.g., dividends from Exxon and Chevron) and exposure to geopolitical tailwinds justify cautious optimism. However, investors must remain nimble, as the path ahead is fraught with both opportunity and uncertainty.

In this high-stakes landscape, the energy sector’s resilience will depend on its ability to navigate sanctions, trade wars, and the gradual shift toward sustainable energy—a balancing act that will define returns for years to come.