In a post on X on Thursday, the Kobeissi Letter pointed out that energy stocks are seeing unprecedented demand from hedge funds.
- The market commentator said that hedge funds have now turned most overweight on energy stocks relative to global stocks since June 2024.
- However, Morningstar noted in a recent report that while energy stocks' performance has become more volatile recently, the sector continues to outperform the broader market.
- Meanwhile, a Bloomberg report, citing people familiar with the matter, said Venezuela is considering leaving the Organization of the Petroleum Exporting Countries (OPEC).
Oil prices have been on a sharp climb this year as the U.S.-Iran war pressured energy supply amid the closure of the critical Strait of Hormuz.
The United States Oil Fund (USO), which tracks the daily price movements of West Texas Intermediate (WTI) light, sweet crude oil, has soared nearly 88% so far in 2026. Meanwhile, the ProShares Ultra Bloomberg Crude Oil (UCO) has gained more than 120%.
The United States Brent Oil Fund LP (BNO), an exchange-traded fund that tracks the price movements of Brent crude oil, is up more than 82% in the same time.
As oil prices continue their upward trend amid the ongoing ambiguity between the U.S. and Iran, some market participants think the energy sector is overcrowded.
Hedge Funds Have Piled Into Oil Stocks
The Kobeissi Letter, which provides commentary on global capital markets, pointed out in a post on X on Thursday that energy stocks are witnessing unprecedented demand from hedge funds.
“Hedge funds bought the most global energy stocks in almost 4 years last week. This also marks their 12th weekly purchase over the last 13 weeks,” it said.
As a result, hedge funds have now turned most overweight on energy stocks relative to global stocks since June 2024, marking a sharp reversal from their most underweighted position since 2021, recorded in February 2026, The Kobeissi Letter said.
“The only period where hedge funds had a materially larger energy exposure relative to global equities was during the 2022 energy bull market. The energy trade is becoming increasingly crowded,” it concluded.
Meanwhile, Andrew Graham, the founder and managing partner of Jackson Square Capital, said in an interview to TheStreet that he would “definitely pass on” oil stocks after taking profits from Valero Energy Corp. (VLO) and Marathon Petroleum Corp. (MPC).
“There's oil getting out of the Gulf way more than I think people realize. So, we would avoid energy,” he said.
Venezuela Mulls OPEC Exit
Meanwhile, a report from Bloomberg, which cited people familiar with the matter, said that Venezuela is considering leaving the Organization of the Petroleum Exporting Countries (OPEC).
Venezuela currently produces only about 1.16 million barrels per day and is exempt from OPEC quotas, but an exit could allow it to pursue higher production without future restrictions.
The news comes after the U.S. intervention in Caracas earlier this year, which resulted in the ouster and capture of former Venezuelan President Nicolás Maduro.
Since then, the Trump administration has restored diplomatic ties, eased some sanctions on the country and gained greater influence over Venezuela’s oil revenues and industry.
Chevron has also expanded its operations in Venezuela, even as Washington is discussing a potentially major stake in Venezuelan oil fields. This could result in oil output rising substantially over time, adding to the global oil surplus expected by the International Energy Agency, potentially putting downward pressure on crude prices.
The IEA expects an oil surplus of about 5 million barrels per day in 2027, up from a 1.27 million bpd deficit amid the restricted Middle East supply. However, eventual higher Iranian exports and a reopening of the Strait could push global supply well above demand, the agency has said.
Venezuela’s exit from the OPEC could also set a precedent among other members to prioritize market share, increasing the risk of an OPEC price war.
Morningstar Says Oil Still Attractive Despite Volatility
In a report published last week, Morningstar noted that while energy stocks performance has become more volatile recently, the sector continues to outperform the broader market, with a prolonged conflict between the U.S. and Iran potentially keeping energy prices elevated.
Beyond exposure to oil and gas prices, energy stocks can offer portfolio diversification, as their performance often differs from other sectors, the firm said. Many also provide relatively high dividend yields, making them attractive to income-focused investors. Additionally, energy equities can serve as a hedge against inflation, since higher oil and gas prices often accompany rising inflation.
The firm named Expand Energy (EXE), Antero Resources (AR), EQT Production Company (EQT), Devon Energy (DVN), Baker Hughes (BKR) and Energy Transfer (ET) as the most undervalued energy stocks as of Aug. 18.
What’s Retail’s Stance On Oil?
On Stocktwits, retail sentiment around USO and UCO stocks was ‘extremely bearish’ at the time of writing, while it was in the ‘bearish’ territory for BNO.
Retail sentiment for XOM, CVX, VLO and MPC was also ‘bearish,’ while it was ‘neutral’ for COP.
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