Energy vs. energy
- Crude oil prices down roughly 20% this year
- S&P energy sector positive despite oil slump
- Natural gas poised to outperform oil again in 2026
Even by the standards of the often-volatile energy market, natural gas has a reputation as a “choppy trade.” Exhibit A: the four-day, 18.1% sell-off in February natural gas futures (NGF6) as of Thursday—a move, coincidentally, that came right on the heels of an eight-day, 18.1% rally that had pushed natural gas prices to a three-year high:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)
Despite the pullback, on Thursday natural gas spot prices were still up more than 16% for the year, while US spot crude oil prices were down roughly 20%—a divergence highlighted in Morgan Stanley & Co.’s 2026 energy outlook. Another disconnect the report notes is the energy sector’s outperformance in 2025 relative to its benchmark commodity. As of Thursday, the S&P 500 energy sector was up roughly 6.5% for the year.
While this outpeformance and a still-uncertain macro picture prompted the analysts to adopt a “defensive positioning bias” into early 2026, they also think:
1. natural gas will continue to outperform crude oil in 2026.
2. large pullbacks in crude oil could nonetheless represent longer-term buying opportunities in stocks with exposure to the market, since prices could potentially strengthen after a soft first half of the year.1
The report also singles out a few natural gas stocks for potential consideration, including Expand Energy (EXE) and EQT Corp. (EQT), both of which have double-digit percentage gains for the year despite tracking the recent pullback in natural gas prices:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)
Natural gas volatility is unlikely to disappear, but that may be a reality traders and investors interested in the energy sector have to embrace in the coming months. For bulls, a volatile market that rallies may be preferable to a calmer one that doesn’t.
Market Mover Update: GE Vernova (GEV) pulled back on Thursday, a day after it rallied 15.6% to a new record high (see “Reactors and reactions”). Thanks to time decay, as of Thursday the trader (or traders) who sold more than 53,000 Avantor (AVTR) $9 put options on November 24 were sitting on a profit even though the stock was trading lower than it was then (see “Large trader fingerprints”).
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1 MorganStanley.com. 2026 Outlook: E&Ps, Majors & Canada. 12/11/25.