Energy Is Leading in 2026—But Are the Oil Majors Cracking?

Key Points

• Energy is leading the S&P 500 this year with an 18% gain as investors vacate tech in search of defensive sectors.
• So far, the oil majors have reported mixed Q4 2025 earnings, resulting in uncertainty about the sector’s ability to sustain its market-leading gains.
• Long term, production forecasts and an increasing supply-demand gap are bullish for Big Oil, and the Energy Select Sector SPDR Fund should mirror that growth.

Entering 2026, forecasts for the performance of the energy sector were tempered, with analysts pointing to a global oil surplus and consequently weaker demand. After mustering a gain of just 8.7% in 2025—good for fourth worst among the S&P 500’s 11 sectors—expectations remained low this year.

But as the market continues to rotate out of tech stocks, defensive sectors continue to benefit from investors’ flight to safety. Chief among them is energy, which has led the index with a year-to-date (YTD) gain of more than 18%.   

However, with four of the oil majors reporting Q4 2025 earnings over the past two weeks, questions are emerging about the energy sector’s ability to sustain its market-leading gains.  

The Oil Majors’ Mixed Earnings Are Raising Some Eyebrows 

Beginning on Jan. 30 with ExxonMobil NYSE: XOM and Chevron NYSE: CVX, followed by ConocoPhillips NYSE: COP and Shell NYSE: SHEL on Feb. 5, the stocks of integrated Big Oil companies have been posting mixed earnings. 

Chevron reported an earnings per share (EPS) beat of 8 cents, but missed on analyst expectations for revenue by $2.39 billion. ExxonMobil beat on the top and bottom lines, while ConocoPhillips and Shell both missed on EPS and revenue. 

Shares of COP and SHEL slid more than 2% and 5%, respectively, on Feb. 5 in the wake of misses. While that erased Shell’s YTD gain, ConocoPhillips remains up nearly 9% YTD, and ExxonMobil and Chevron are enjoying 19% and 15% YTD gains, respectively. 

But earnings are rear-facing. What is more important to investors is guidance. 

Management at Chevron is forecasting compound annual growth rate (CAGR) for its cash flow from operations to be around 10% in 2026, alongside 10% production CAGR. According to the company, that should result in $12.5 billion of additional free cash flow by the end of the year. 

ConocoPhillips is targeting a combined $1 billion reduction in CapEx in 2026, while Shell is aiming to reduce its operating costs by $1 billion this year. 

In his Q4 earnings call comments, ExxonMobil CEO Darren Woods said the company’s product solutions business is “strengthening the portfolio with advantage project startups and high-value product growth…projects [that] are expected to drive meaningful earnings growth through 2030, with 60% coming from assets already online.”

Woods added that ExxonMobil’s “growth trajectory remains robust, and we expect to exceed 2.5 million oil equivalent barrels a day beyond 2030.”

Macro Factors Driving Energy’s Rebound Remain in Place

In addition to those efficiency measures and production increases, the macro environment remains favorable for the energy sector. 

On Feb. 5, the U.S. Energy Information Agency (EIA) reported that natural gas stocks in the lower 48 states saw their largest reduction in over a year, driven by Winter Storm Fern and subsequently increased heating demand.  

The EIA noted that natural gas consumption in residential and commercial sectors from Jan. 23–26 were, on average, 29% higher than their five-year average for those dates. 

Meanwhile, the U.S. Bureau of Labor Statistics’ December Consumer Price Index data showed 10.8% year-over-year (YOY) inflation for utility gas services. 

For oil, the International Energy Agency (IEA) forecasts global demand to average 930,000 barrels per day in 2026, up from 850,000 barrels per day in 2025.

Looking farther out, in its 2026 investor presentation, Chevron highlighted how—despite the industry grappling with a global supply glut—the gap between supply and demand will continue to expand through 2035, when it ultimately reaches 50 million gallons per day, with demand increasing across all sectors.    

The XLE Offers Safer Exposure to Energy

For investors looking to add energy positions, any of the aforementioned stocks are a good bet for buy-and-hold portfolios.

But for those more comfortable with broad exposure, the Energy Select Sector SPDR Fund NYSEARCA: XLE provides a basket of the top natural gas and oil producers.

Its top-five holdings include ExxonMobil, Chevron, ConocoPhilips, SLB NYSE: SLB—formerly Schlumberger—and Williams Companies NYSE: WMB.

So far this year, the fund is up more than 14% while charging an expense ratio of just 0.08%. 

The ETF has received a vote of confidence from the smart money, with institutional owners injecting nearly $13 billion into the XLE over the past 12 months against outflows of $2.37 billion. 

Current short interest isn’t insignificant at 12.45% of the float, but for investors who are long energy, what Wall Street’s bears are thinking this month should have little impact on the fund’s performance for the remainder of the year.