Oil prices rebounded Thursday after suffering their steepest three-day decline in nearly five years, but energy stocks failed to follow crude higher as investors weighed the possibility of easing tensions between the United States and Iran following the 2026 midterm elections.
West Texas Intermediate (WTI) crude futures climbed approximately 2% during Thursday’s trading session, recovering some losses after plunging roughly 15% between October 30 and November 4. The selloff pushed U.S. crude from above $104 per barrel to approximately $88, its lowest settlement since late August.
Despite Thursday’s recovery, shares of major energy companies remained under pressure, highlighting growing uncertainty about the outlook for oil producers and the broader energy sector.
The Energy Select Sector SPDR Fund (XLE), which tracks major U.S. energy companies, declined even as crude prices advanced. Exxon Mobil (XOM) and Chevron (CVX) showed little movement, while Baker Hughes (BKR) and Williams Companies (WMB) traded lower.
The divergence reflects investors’ concerns that oil prices could face additional downward pressure if geopolitical tensions ease and disrupted supplies return to global markets.
Much of the recent volatility stems from changing expectations surrounding the U.S.–Iran conflict. Following Tuesday’s midterm elections, which resulted in Democrats gaining control of Congress, investors began reassessing Washington’s willingness to continue military operations in the Middle East.
Vice President JD Vance publicly attributed Republicans’ election losses to the war, reinforcing expectations that political pressure could encourage diplomatic efforts and reduce the risk of further escalation.
That possibility triggered Wednesday’s sharp decline in crude prices as traders began removing some of the geopolitical risk premium built into oil markets.
However, uncertainty remains considerable. Iran’s oil exports have reportedly fallen from approximately 1.8 million barrels per day to nearly zero during the conflict, according to Apollo Global Management chief economist Torsten Sløk.
Any meaningful restoration of those exports could increase global supplies and place additional pressure on prices, while renewed military tensions could quickly reverse the recent decline.
The relationship between oil and the broader stock market has also become increasingly unusual.
According to Yahoo Finance calculations, crude oil and the S&P 500 have recorded a daily correlation of approximately negative 0.44 in 2026, their strongest inverse relationship since at least 2001.
Higher energy prices have weighed on equities by increasing transportation, manufacturing, and operating costs while complicating the Federal Reserve’s efforts to control inflation. Conversely, falling crude prices have supported expectations for lower inflation and potentially more favorable interest-rate conditions.
Wednesday illustrated that relationship, with the S&P 500 gaining more than 1.5% as crude oil plunged more than 8%.
For small-cap energy investors, the changing environment presents both risks and opportunities.
Smaller exploration and production companies can be particularly sensitive to fluctuations in crude prices because lower commodity revenues may quickly affect cash flow, drilling budgets, and debt repayment capacity.
Oilfield service providers could also face reduced demand if producers scale back capital spending in response to sustained price weakness.
Meanwhile, businesses in transportation, manufacturing, and consumer-oriented industries may benefit from lower fuel costs, potentially improving profit margins.
Despite the recent selloff, energy remains one of 2026’s strongest-performing market sectors. XLE had gained approximately 45% year to date through November 4, even after declining roughly 9% from its October 30 high.
The question now is whether Thursday’s rebound marks the beginning of a sustained recovery or simply a temporary pause in a broader decline.
With geopolitical developments continuing to dominate oil markets, investors will be closely monitoring diplomatic signals from Washington, potential changes in Iranian production, and whether energy stocks can regain momentum alongside crude prices.
