Energy Leads S&P 500 as Oil Surge Boosts Midstream

Energy has emerged as the top-performing sector in the S&P 500, delivering a total return above 30% this year after oil prices rose amid tensions in the Middle East. The sector was roughly 25% higher before recent fighting accelerated gains. At a Q2 market symposium on April 30, Stacey Morris, head of energy research at VettaFi, highlighted the sector’s strength.

The price surge followed a tightening of supplies after fighting effectively closed a major strait that handles about 20% of global petroleum flows. Market analysts estimate roughly 12 to 15 million barrels per day of oil, refined products and natural gas liquids have been disrupted. Front-month crude increased and the longer-dated West Texas Intermediate futures curve shifted, with 2027–2028 contracts moving from under $60 per barrel at the start of the year to nearer $70.

Midstream companies and master limited partnerships, which operate pipelines, processing plants and export terminals, have benefited from stronger U.S. and Canadian exports and from being less exposed to direct commodity-price swings. U.S. Gulf Coast exports are positioned to supply Europe while Canadian West Coast flows have greater access to Asian buyers. MLPs currently yield near 7%, and the broader midstream sector yields about 4.7%.

Energy security concerns have renewed attention on baseload generation. More than 30 countries signed an international declaration aiming to triple nuclear capacity by 2050. Nuclear plants store fuel on-site for long periods and are refueled every 18 to 24 months, reducing the need for frequent fuel deliveries. Some Asian economies have shifted toward coal to replace costly liquefied natural gas while LNG flows face uncertainty, including limited visibility on damage and export disruptions in parts of the Middle East. Indexes that track nuclear and coal-related assets have seen increased investor interest.

The U.S. Energy Information Administration now projects U.S. oil production will rise by about 400,000 barrels per day in 2027 to nearly 14 million barrels per day, a record level and a reversal from an earlier forecast that had expected a decline of about 300,000 barrels per day. That projection supports expectations that North American supply could meet higher demand in Europe and Asia as markets adjust.

Morris told attendees: ‘Things are going to continue to be choppy and oil will remain driven by headlines.’