Energy stocks hit record as oil rises on fading deal hopes

Energy stocks reached a record high on Tuesday as investors grew cautious about the prospects of a near-term ceasefire in the ongoing Iran war, which could potentially ease tensions in the Strait of Hormuz. The S&P 500 Energy Sector Index surged 1.8 percent, marking its first all-time high since March 27. However, energy stocks initially fell by 16 percent from that peak by early July, following a brief cessation of hostilities and reports of US-Iran negotiations.

Despite the setback, energy stocks have since rebounded, now up 21 percent from their July 1 low. Rob Thummel, senior portfolio manager at Tortoise Capital, attributes the recent rise to the enduring geopolitical risks and potential for oil prices to decrease, but emphasizes the crucial role of energy stocks in the current market.

Brent crude futures have surged around 50 percent this year due to supply constraints stemming from the war, leading to stronger earnings and cash flow for major US producers such as Chevron and ExxonMobil. These companies have reported significant earnings growth and are expected to generate substantial free cash flow in the coming years.

Additionally, other energy companies like Valero Energy Corp. and PBF Energy Inc. have reported their most profitable quarters on record. Analysts believe that energy stocks are currently attractively valued, given the expected higher oil prices and sustained product demand. Despite potential challenges if commodity prices decline, investors are optimistic that energy stocks will not suffer severe losses if a ceasefire is achieved.