Four power plays in the energy sector

Oil prices surged in June on supply fears as conflict escalated in the Middle East, only to fall sharply following US airstrikes in Iran, de-escalation, and a ceasefire. While prices have since leveled out, they could fall further and remain vulnerable to more big swings if geopolitical tensions flare up again.

However, that doesn’t mean investors can’t find compelling investments in the energy sector. Here are key risks and opportunities to watch:

West Texas Intermediate (WTI) crude prices were trending down into the second quarter, as the Organization of the Petroleum Exporting Countries (OPEC) announced new output hikes, and investors worried tariffs would slow global growth and curb oil consumption. However, they began recovering in May amid heightened geopolitical tensions and saw a short-lived spike in June as Middle East hostilities peaked.

Since then, WTI prices have hovered around $65 a barrel – and they may settle lower from here. Morgan Stanley Research sees crude trading in the $53-to-$56-per-barrel range until the end of 2026. If supply stays plentiful and geopolitical risks subside, downside price risks could emerge from tariffs potentially weighing on demand. Ultimately, OPEC’s buildup of spare capacity could limit prolonged upside for prices.

Energy investors may want to consider adding exposure in other areas:

In contrast to crude, the natural gas market looks poised for growth, driven by constrained global supply and increasing demand from data centers and generative AI technologies, as well as the potential onshoring of more power-intensive businesses like manufacturing.

Additionally, the EU’s shift away from Russian energy has significantly boosted US natural gas exports. Such exports remain a focal point of trade negotiations, with the EU and Japan recently pledging significant purchases of liquified natural gas (LNG) from the US as part of their respective trade deals with the administration.

Master limited partnerships (MLPs), which focus on energy infrastructure, derive most of their revenues from midstream activities, including transporting, distributing and exporting commodities like oil and natural gas through pipelines and other networks. They have outperformed the broader energy sector by 9% since the 2024 US election and are likely to continue benefiting from a rise in US natural gas production and exports.

MLPs can also help investors hedge inflation by providing steady income through distributions that often increase with rising energy prices.

Clean and alternative energy stocks have been outperforming traditional energy so far this year, despite the administration’s support for fossil fuels. This is consistent with a recent historical pattern: Under the previous Trump term, these stocks also outpaced traditional energy and then underperformed during the Biden administration, despite robust fiscal support. This suggests interest rates may have a greater impact on clean and alternative energy stocks than fiscal spending, with lower rates typically supporting stronger performance.

That said, policy developments do play a role. The One Big Beautiful Bill Act immediately phases out certain clean-energy-related tax credits, including for electric vehicles, home solar and storage, for example, but it imposes less stringent rollbacks on utility-scale wind and solar power projects. Overall, the legislation can be seen as softer on clean and alternative energy than previously expected, especially for hydrogen, geothermal and nuclear energy production.

Within the clean and alternative energy industry, nuclear energy stocks have soared lately – up over 50% since early April, due to a combination of policy support and AI data center tailwinds. The executive branch has issued orders to streamline nuclear development, speed up licensing and pivot nuclear fuel supply chains back to the US  

Beyond the political embrace, growing AI demand for power will likely require both conventional and non-conventional energy sources to meet data center needs.

This article is based on the June 25, 2025, Morgan Stanley Wealth Management Global Investment Office report, US Policy Pulse: The Power Playbook.

Wondering how you can align your investments with economic and market trends like the ones discussed in this report? Check out these themes and explore related exchange-traded funds (ETFs).

You may also want to consider learning more about how futures could help you navigate today’s markets. Adding futures to your trading strategy offers unique opportunities to potentially help diversify your portfolio, speculate on price movements on a range of different assets, and hedge against downside risk.

When considering which investments may fit into your portfolio, be sure to keep in mind individual goals, timelines, and risk tolerance.

CRC# 4726310 08/2025