In-depth Analysis of Investment Allocation in the Energy Sector Amid Sustained Decline of Brent Crude in 2025

The crude oil market experienced a significant decline in 2025:

• Cumulative Return
  : -9.35%[0]
• Maximum Drawdown
  : -26.05%[0]
• Annualized Volatility
  : 30.77%[0]
• Current Price
  : $69.74[0]

Brent crude has fallen approximately 19% year-to-date, marking the largest annual drop since 2020 and heading toward the longest annual loss cycle in history[1,2]. Key drivers include:

• Worsening global supply surplus: IEA predicts supply will exceed demand by about 3.84 million barrels per day in 2026[3]
• Potential release of more Russian crude supply from Russia-Ukraine peace talks[3]
• Weak Chinese economic data affecting demand expectations[1]

Despite falling oil prices, the energy sector showed resilience:

• XLE (Energy ETF)
  : +3.76%[0]
• Volatility
  : 24.72% (lower than crude but higher than the broader market)[0]
• Maximum Drawdown
  : -18.80%[0]

The chart shows that crude oil prices (USO) declined significantly in 2025, while energy stocks (XLE) demonstrated stronger resilience—underperforming the S&P 500 (SPY) but maintaining positive returns.

ExxonMobil hit a new 52-week high in 2025 despite a nearly 20% drop in oil prices[4], revealing a

1. Downstream Business Hedge
   : Refining operations benefit from low-price environments
2. Cost Advantage
   : Guyana project has a break-even point of only $30/barrel[4]
3. Dividend Stability
   : Track record of maintaining dividends during the 2020 pandemic赢得 investor trust[4]
4. Balance Sheet Strength
   : Sufficient cash flow to support dividends and buybacks

Based on 2025 market performance, we propose the following allocation framework:

• Downstream business provides natural hedging
• Global asset distribution reduces geopolitical risks
• Strong cash flow supports shareholder returns

• XOM (ExxonMobil)
  : Top choice with excellent cost control and project management capabilities[4]
• CVX (Chevron)
  : Second choice with high asset quality but slightly weaker growth momentum

• Pipeline companies (e.g., KMI, EPD)
• LNG export facilities
• Stable-fee energy infrastructure

• Decoupled from oil prices, more dependent on throughput
• High dividend yield (usually 6-9%)
• Long contract terms, predictable cash flow

• Wait for signals of industry capital expenditure recovery
• Focus on leading enterprises with technological leadership and obvious cost advantages
• SLB (Schlumberger)
  : As an industry leader, it only fell slightly by 0.39% in2025, showing relative resilience

• COP and EOG fell by5.98% and15.28% respectively in 2025[0]
• Highest sensitivity to oil prices, large downside risks
• Cost curve of U.S. shale oil is shifting upward, competitiveness declining

###3.2 Summary of Allocation Recommendations

###4.1 Key Risk Factors

1. Risk of Further Oil Price Decline
   • Current Brent is around $60; if it falls below $50, it may trigger a second round of decline in energy stocks
   • Monitor signs of U.S. shale oil production cuts

2. Geopolitical Risks
   • Progress in Russia-Ukraine peace talks may release more supply[3]
   • Situation in the Middle East remains a potential catalyst

3. Demand-side Risks
   • Strength of China’s economic recovery[1]
   • Global economic growth slowdown
   • Accelerated substitution by new energy

###4.2 Tactical Adjustment Signals

• Oil price stabilizes and breaks through the $70 resistance level
• OPEC+ deepens production cuts
• Significant decline in U.S. shale oil production
• Inflection point in China’s demand

• Oil price falls below the $55 support level
• Clear signs of global recession
• Unexpected tightening of new energy policies

###5.1 Position Shift of Traditional Energy

• From Growth Stocks to Value Stocks
  : Energy stocks are gradually becoming “cash cows” rather than growth stories
• Dividends + Buybacks as Main Return Sources
  : Enhanced capital expenditure discipline, abundant free cash flow

###5.2 Energy Transition-related Opportunities

Despite pressure on traditional energy, the following areas are worth attention:

• LNG Infrastructure
  : Strengthened role of natural gas as a transition energy
• Carbon Management Services
  : Commercialization of CCUS technology
• Grid Modernization
  : Demand for new energy grid connection

[0] Gilin API Data - Crude Oil & Energy Sector Price Data, Technical Indicators & Python Calculation Results
[1] Yahoo Finance Hong Kong - “〈Energy After Hours〉Global Supply Surplus and Prospects of Russia-Ukraine Peace Overshadow U.S.-Venezuela Tensions, Crude Oil Under Pressure to Fall” (https://hk.finance.yahoo.com/news/能源盤後-全球供應過剩-俄烏和平現曙光-蓋過美委關係激化-原油承壓走跌-220246461.html)
[2] Yahoo Finance Hong Kong - “〈Energy After Hours〉Supply Surplus Shadow Looms, Crude Oil Plunges Over 2% Toward Largest Annual Drop Since 2020” (https://hk.finance.yahoo.com/news/能源盤後-供給過剩陰影籠罩-原油重挫逾2-邁向2020年以來最大年跌幅-213428311.html)
[3] Yahoo Finance Hong Kong - “Brent Crude Falls Below $60 Amid Supply Surplus and Russia-Ukraine Ceasefire Talks” (https://hk.finance.yahoo.com/news/布倫特原油跌破60美元-受供應過剩及俄烏停火談判影響-143119051.html)
[4] Yahoo Finance - “Why Exxon Mobil Stock Just Hit a New 52-Week High While Oil Prices Tanked 20%” (https://finance.yahoo.com/news/why-exxon-mobil-stock-just-153022986.html)