Wells Fargo Investment Institute downgraded its rating on the S&P 500 energy sector to “unfavorable,” citing what it said were limited prospects for a sustained oil-price risk premium despite the ongoing conflict in the Middle East.
The move follows a more than 6-per-cent gain in the benchmark S&P 500 index’s energy sector since the start of the war, the best performance among the 11 major S&P sectors.
“Sector performance has improved materially in 2026, supported by an unexpected cold snap earlier this year, and the rise in oil prices in response to the war... however, our base case is still a war of limited duration that we expect will allow returning global energy supply to push prices lower again,” WFII strategists said in a note.
Oil prices fall as investors await clarity on U.S.-Iran peace proposal
The institute also cut its rating on the energy sector within commodities to “unfavorable” from “neutral,” noting that with oil near US$100 a barrel, downside risks dominate.
It sees the energy sector’s recent outperformance as an opportunity to lock in profits and reallocate to industrial and precious metals.
An extended closing of the Strait of Hormuz, which carries oil and petroleum products from Iraq, Saudi Arabia, Qatar, Kuwait and the United Arab Emirates, has caused global energy price shocks, fuelling concerns about sustained supply disruptions.
WFII raised its 2026-end target for Brent crude to between US$75 and US$85 a barrel, above its prior forecast of US$65 to US$75.