1 Big Reason to Avoid Energy Stocks in 2026

Core Viewpoint - A growing global oil glut is leading to declining oil prices and negatively impacting energy stocks, suggesting investors reconsider their positions in this sector as they approach the new year [1]. Oil Supply and Prices - There are currently 1.4 billion barrels of oil in transit or storage, which is 24% higher than the average for this time of year from 2016 to 2024 [2]. - West Texas Intermediate oil is trading at approximately $57 per barrel, down $15 from the start of the year, while Brent oil is priced around $60 per barrel, also down $15 from early 2025 [3]. - The average price of gasoline in the U.S. has fallen below $2.90, marking the lowest level since the COVID-19 pandemic [4]. Impact on Energy Stocks - Energy stocks are experiencing downward pressure due to falling oil prices, with Chevron's share price down 9% since early September [5]. - ExxonMobil has shown slightly better resilience but is also trending lower, while ConocoPhillips has decreased about 9% since early September [7]. - Occidental Petroleum is down 20% for the year, and Marathon Petroleum has dropped 16% over the past month [8]. Future Outlook - Analysts predict that the global oil oversupply will continue into 2026, with the International Energy Agency forecasting a supply-demand mismatch of over 3.8 million barrels per day [11]. - The U.S. Energy Information Administration anticipates that rising inventories will exert downward pressure on oil prices, projecting Brent oil to fall to $55 in the first quarter of 2026 [12]. Industry Adjustments - Major oil companies are responding to the downturn by reducing their workforces, with ExxonMobil announcing 2,000 job cuts as part of a restructuring plan [15]. - Other companies, including ConocoPhillips and Chevron, are also implementing layoffs [15]. Economic Implications - Lower oil prices can stimulate economic growth globally, except in countries heavily reliant on oil exports, which negatively affects oil companies and their shareholders [17]. - The relationship between oil prices and supply is complex, as lower prices can lead to reduced production and investment, eventually decreasing supply while increasing demand [18].