Energy Sector Poised for a Rebound in 2026, Driven by Geopolitics and value
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Energy stocks are surging at the start of 2026, fueled by geopolitical developments and a compelling valuation case, prompting investors too reconsider a historically underperforming sector. Shares of the Energy select Sector SPDR ETF (XLE) jumped 2.1% on January 1st, 2026, and then soared another 5% on Monday morning following news of Nicolás Maduro’s capture, signaling a potential turning point for the industry.
Chevron Takes Center Stage
Chevron (CVX) is experiencing important gains, jumping by the most since July 2022, while Exxon Mobil (XOM) has seen more modest increases. This disparity is largely due to Chevron’s unique position as the only producer with assets in Venezuela. As one analyst noted, “Chevron’s presence in Venezuela makes it a crucial component of the XLE, representing 17% of the ETF.” Moreover, over 40% of the US Energy sector’s funds are concentrated in CVX and XOM, suggesting that a bull market in these two stocks could considerably lift the entire sector.
Energy: An Undervalued Possibility
Despite the recent gains, the Energy sector remains significantly undervalued.Currently, energy accounts for only 2.8% of the S&P 500, near its lowest level on record. This is especially striking considering that West Texas Intermediate (WTI) crude oil is trading around $57 per barrel, below its price from two years ago.
Technical Analysis Points to Further Gains
Breakout above $51 would be a bullish signal, potentially driving the price towards a measured-move objective of $63, based on the trading range between $37 and $49 since early 2023. On a longer-term basis, a move towards $90 cannot be ruled out, though the ETF previously plummeted to $11.44 in March 2020. A senior official stated that a high amount of volume by price currently exists below the current level, suggesting substantial buying demand if crude oil prices decline following the resolution of geopolitical uncertainty in Venezuela. Moreover, a bullish golden cross pattern emerged in September, foreshadowing the current upswing.
Energy Stocks Outperforming Crude Oil
A key indicator of the sector’s strength is the outperformance of energy stocks compared to crude oil. XLE has outperformed the United States Oil Fund (USO) by 43 percentage points over the last five years, suggesting investors may be better served by owning shares rather than a commodity fund. This breakout follows a nearly three-year sideways trading pattern. “Don’t fight the breakout and trend of a larger degree here,” one analyst cautioned, suggesting XLE may be the preferred overweight in 2026, not USO.
Interestingly, USO has outperformed the rolling prompt-month of WTI crude oil futures over the past 12 months (-10.4% versus -21.6%),indicating that USO’s performance is somewhat inflated.
Crude Oil Remains a Concern
Despite the positive momentum in energy stocks, crude oil itself remains a weak market. The dollar’s nearly 10% drop since the beginning of 2025 has provided limited support. Essential supply-and-demand concerns are evident in the price trends, with WTI’s 200-day moving average declining to under $63, above the current price. The 50-day moving average has been below the 200-day moving average since Q3 2024, reinforcing the bearish trend.
Positioning and Sentiment Favor a Shift
Investor positioning also suggests a potential shift in sentiment. According to the December Bank of America Global Fund Manager Survey, portfolio managers were the most underweight Energy among all sectors. Relative to history, allocation to oil & gas stocks was nearly two standard deviations below the 20-year average. As a company release noted,”when things go from bad to just less bad,we can see intense portfolio shifts and fast price action.”
Energy is off to a strong start in 2026, and the recent news surrounding Maduro’s capture may prompt a reassessment of this long-time underperforming sector. While energy stocks are looking more attractive than oil itself, XLE has yet to reach new highs.
