Oil prices took a sharp step back on Tuesday, pulling energy stocks down with them, but French energy major TotalEnergies managed to hold its ground after locking in a long-term liquefied natural gas (LNG) supply agreement with a Chinese buyer.
US benchmark West Texas Intermediate (WTI) crude fell 2.9% to $93.27 a barrel, while the international benchmark Brent dropped 2.7% to $100.79. The slide helped push the Energy Select Sector SPDR Fund (XLE), a widely followed energy-stock exchange-traded fund, down 1.1% in premarket trading.
When crude prices move that sharply, the move often overrides company-specific news. That's why some oil producers saw their shares slip even after reporting earnings updates. For investors, it's a reminder that energy stocks are heavily tied to the daily swings in oil prices, and a big drop in crude can quickly erase the positive impact of a good earnings report.
Why oil prices fell
The brief didn't specify a single trigger for the decline, but oil markets have been volatile recently, with prices swinging on concerns about global demand, supply disruptions, and broader economic uncertainty. A drop of this size suggests traders were reacting to a mix of factors, possibly including worries about slowing economic growth or expectations of increased supply.
For everyday investors, the key takeaway is that oil prices are influenced by a complex web of forces—geopolitics, production decisions by major exporters, and the health of the global economy. When any of these shift, it can move prices quickly, and that volatility often shows up in the share prices of energy companies.
TotalEnergies' long-term LNG deal
TotalEnergies was the exception to the broader selloff, inching up after signing an initial agreement to supply 900,000 tons of LNG per year to Jiangsu Guoxin Group, a Chinese energy company, for 15 years starting in 2028.
These deals are known as "offtake agreements"—long-term commitments to buy and sell a set volume of gas at an agreed price formula. For the seller, they provide a steady, predictable stream of revenue that isn't subject to the daily ups and downs of spot markets. For the buyer, they secure a reliable supply of fuel for decades.
Such contracts are especially valuable in the LNG business, where building the infrastructure—liquefaction plants, shipping fleets, and receiving terminals—requires massive upfront investment. Having a guaranteed buyer makes it easier to secure financing and plan for the long term.
For TotalEnergies, this deal adds to a portfolio of long-term contracts that can make its earnings less sensitive to every wiggle in WTI and Brent. That's why the stock can sometimes look more resilient than the broader energy sector on days when crude prices are doing most of the talking.
What it means for investors
The contrast between TotalEnergies and the broader energy sector highlights an important distinction for investors. Companies with a heavy reliance on spot oil prices—where they sell their output at whatever the market pays on any given day—tend to see their share prices move in lockstep with crude. In contrast, companies with a larger share of contract-backed sales, like TotalEnergies' LNG deals, can offer a bit more stability.
That doesn't mean contract-heavy companies are immune to oil price swings, but it does mean their earnings are less volatile. For investors, this can be a factor to consider when looking at energy stocks: a company with a strong backlog of long-term contracts might be a better fit for those seeking steadier returns, while those more exposed to spot prices might offer higher upside in a rising oil market but also more risk when prices fall.
The broader energy sector, as represented by XLE, includes many companies that are more directly tied to oil prices, so it tends to move more with crude. On days like this, when oil drops sharply, the ETF can be a good barometer for how the sector as a whole is feeling.
Looking ahead, investors will likely keep an eye on oil prices, which remain elevated by historical standards even after Tuesday's decline. The outcome of the US midterm elections, which were underway, could also influence market sentiment, as could upcoming economic data that might hint at the direction of global demand.
For now, the message is clear: oil prices remain a powerful force in the energy sector, and long-term contracts can provide a buffer against the daily noise. As always, it's wise to consider how much volatility you're comfortable with when investing in energy stocks.
