Rising tide.  July saw continued strength from the overall stock market (S&P500 +2.2%, Nasdaq +3.7%), while energy generally outperformed (S&P 1500 Energy +2.7%, S15ENRS).  July’s energy subsector performance was as follows:  Oilfield Services +5.8% (OIH), Midstream +3.2% (AMZ), Upstream +1.9% (XOP) and Clean Energy +2.3% (ICLN).  Front month WTI rallied +6.4% (~$69.25/bbl), while natural gas fell -10.1% (~$3.10/mmbtu)⁽¹⁾.

ENERGY MACRO

With decent summer demand, oil prices have been stronger than the oil outlook.  WTI has been sticky/resilient in the mid-high $60’s, while staring increased OPEC+ production and inventory builds in the face.  The early August OPEC+ meeting yielded the expected result – another ~550kbbls/day returned to the market.  Will OPEC+ keep going, beginning to add back the final 1.6mmbbls/day of restricted production?  Most expect at least a pause in further increases.  Bulls believe OPEC+ will reverse course and cut supply if (when?) prices soften in the Fall.  US sanctions on Russia might impact supply and price on the margin.  The macro variables abound.

Looking ahead, the oil market should get progressively looser with 2H 2025 inventory builds in the 1-2mmbbls/day range.  Historically, when inventories rise, prices fall.  This year has already seen two dramatic external influences – tariffs/Liberation Day and the 12 Day Iran/Israel/US conflict.  The first took 2026 NYMEX oil futures to a yearly low of ~$56/bbl.  The second vaulted them to a yearly high of ~$68/bbl.  Today, they sit almost exactly in the middle at ~$62/bbl (and below the current WTI spot price of $63.77/bbl).  Overall, not a great number for the financial health of the energy business.

Patience remains the mantra.  There could easily be another year of mediocre fundamentals and prices.  So, we take it month-by-month.

Natural gas has had a tough few months.  Spot prices were over $4/mmbtu not long ago, but have been flirting with the $3/mmbtu level most recently on higher wellhead production levels.  Increased drilling activity in the Haynesville (high productivity wells) has garnered notice, as has the return of restricted supply from public operators.  Additionally, on its Q2 earnings call, EQT highlighted new contracts with data centers – a bullish datapoint.  However, the company indicated it might add supply to meet those contracts, rather than simply redirecting existing production.  This spooked the gas market and gas stocks and is a good reminder that despite very good corporate behavior, “the market” lives in constant fear of drilling-driven oversupply.

The bull story for natty has always been about LNG demand-driven tightness in 2026..but getting there is proving choppy.  We remain optimistic and will ride out the near-term volatility.

INDUSTRY DYNAMICS

• More production, less spending – Q2 earnings from US upstream companies have continued the trend of in-line to slightly higher production levels being achieved with less-than-forecast capital spending.  Longer laterals, faster drilling, and faster completions are all contributing to this uptick in capital efficiency.  This will carry over into 2H2025 and 2026, but we still expect US production to slow over this time frame given likely price-driven declines in overall cash flows and rig count.
• Chevron-Hess-Exxon reaches a conclusion – After more than a year, international arbiters sided with Chevron, ending Exxon’s attempt to stymie the acquisition of Hess.  The kerfuffle proves one thing – world class assets are very, very valuable and worth fighting for.  We believe this will continue to be the case as global oil demand remains resilient, decline curves remain inevitable and exploration spending remains anemic.  With the Hess drama concluded, industry onlookers will now move on to speculate about “what’s next?” for Exxon.
• Exxon signals M&A is more strategic ­– Commentary from CEO Darren Woods before/during Q2 earnings has implied that Exxon will be taking a harder look at M&A going forward.  While stressing that volume for the sake of volume doesn’t add much value, Wood’s rationale is that Exxon’s platform creates great opportunities to leverage incremental assets.  This makes sense to us.  Of course, it all depends on the price of any given acquisition.  In the current world, where energy assets aren’t afforded much love from public markets, valuation is undeniably attractive.  Exxon is a logical buyer for much of the US public upstream universe (FANG, OXY, EOG, DVN, etc.) and for many global assets.  Our over/under by 2030 is $50B of M&A…and it could come in really big chunks.    
• Record pricing for power auction in PJM – Are power markets tight/tightening?  Yes.  Two years ago, the PJM capacity auction cleared at $29/MWh.  Last year, that exploded to ~$270/MWh.  This year, the number was ~$329/MWh, +22% y/y.  This type of price signal is going to keep older facilities from retiring and encourage new capacity to come into the market.  Power is the new shale boom.
• Big announcements in Pennsylvania – When you hold an Energy and Innovation Summit, people show up and announce things.  That’s what happened at Carnegie Mellon’s event in mid-July as ~$90B of “deals” were announced to much fanfare.  The conference was focused on AI, data center infrastructure, natural gas, nuclear energy and grid improvements.  Utility PPL announced a joint venture with Blackstone Infrastructure to build, own and operate new Pennsylvania gas-fired power plants (see bullet above on pricing incentives).  Blackstone’s overall headline commitment was $25B.  EQT announced two gas supply deals for projects at Shippingport and Homer City.  The hard part comes next – turning announcements into ongoing projects with committed customers for the gas and power.  We remain bullish on the overall gas demand thesis behind AI/data centers, but expect it to be a 2028+ story, not a 2026+ story as pulling together $10B+ projects takes time.
• Baker Hughes making moves – BKR has been in a sweet spot, raking in orders for its equipment that goes into LNG facilities and other clean energy applications.  Now the company is vertically integrating, announcing the acquisition of EPC player Chart Industries (symbol GTLS) for $14B in cash.  Just like the Upstream segment, Oilfield Services companies are consolidating.  A trend we think should/will continue.
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ENERGY EQUITIES

Energy stocks remain good values, with limited catalysts and looming (albeit widely recognized) challenges to the macro. Energy’s money-flow archenemy remains technology – which is over 30% of the S&P500 and putting up solid Q2 results and delivering bullish 2025/2026 earnings forecasts.  Until energy supply/demand dynamics turn favorable and/or technology loses its momentum, energy stocks will remain lonely and laggards.  In this environment, energy-dedicated players must have patience and find alpha.  This remains our playbook.    

As always, we welcome your questions and comments.

(1) Bloomberg