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Investing.com -- Energy stocks rallied sharply over the past three weeks, but Citi believes investors are asking the wrong question.
Analyst Alastair Syme wrote that the most common query they are getting is “what oil price are the stocks discounting?”
However, the analyst believes this reflects a misconception that energy equities are simply a proxy for oil prices.
In Citi’s view, the premise is flawed. Syme noted that “energy equities outperformed (falling) oil prices by 30% in 2025,” while oil prices were “essentially flat 2014 vs 2008; energy equities fell 30%.” He added that in 2025, “oil prices fell 20%; energy equities were up on the year.”
As a result, Citi concludes that the data shows “the oil price is not the universal driver.”
Instead, the bank argued that a better valuation anchor is long-term demand. According to the note, “IOC energy equities are only pricing +0.5% p.a. terminal growth, below the 1.4% p.a. trend growth in global oil & gas demand.”
Syme said this gap implies the market “fails to recognise the criticality of oil and gas to the global economy,” a relationship underscored by recent Gulf conflict disruptions.
Citi also questioned common valuation shortcuts, saying many investors “look to math around FCF yield,” but this “gives no credit for growth and business longevity.”
While Citi continues to stress portfolio durability, it highlighted companies positioned to benefit from market growth.
The bank repeated its preference for TotalEnergies in Europe, citing “superior growth and longevity,” and for ConocoPhillips in the United States, which it said offers similar growth to peers “but on a significantly cheaper valuation.”