While much of Wall Street's attention has been on artificial intelligence and tech stocks, a quieter rally has been building in an unlikely corner: oil. US energy stocks have climbed more than 50% this year, far outpacing the broader market's gains. The driver? Crude prices that have stayed above $100 a barrel, filling the coffers of the world's biggest oil companies.
Take the three largest US oil majors: ExxonMobil, Chevron, and Shell. Together, they generated roughly $50 billion in free cash flow in the second quarter alone. That's nearly 70% of the cash they produced during all of 2025—a staggering pace that underscores just how profitable the current environment has become.
ExxonMobil alone brought in $7.2 billion in free cash flow last quarter, more than triple what it generated in the same period a year earlier. That kind of windfall is not just a headline number; it has real implications for shareholders, from dividends to buybacks.
Why oil stocks might still be cheap
Despite the big run-up, many analysts argue that energy stocks are not as expensive as they look. The key metric is free cash flow yield—the cash a company generates relative to its market value. With oil prices high, these companies are producing cash at a rate that makes their stock prices look modest by historical standards.
For everyday investors, this means the rally may not be over. Even after a 50% jump, the sector could still offer value if crude prices stay elevated. But that's a big 'if.' Oil is notoriously volatile, and prices can swing on geopolitical news, OPEC decisions, and shifts in global demand.
What to watch next
Investors should keep an eye on a few things. First, how long can oil prices stay above $100? If they slip, so could the cash flows that are driving these stocks. Second, watch what companies do with their extra cash. Many are boosting dividends and share buybacks, which can support stock prices even if earnings dip.
Also important: the broader economic backdrop. High oil prices can fuel inflation, which may prompt central banks to keep interest rates higher for longer. That could weigh on the overall stock market, but energy companies often benefit from the same conditions that hurt other sectors.
For those looking at energy stocks, the key is to focus on companies with strong balance sheets and disciplined spending. The current cash bonanza is a reward for years of cost-cutting and efficiency gains, but not every company will manage the next downturn as well.
As always, diversification matters. A portfolio heavily weighted in any single sector—including energy—carries risk. But for investors willing to ride the volatility, the oil patch may still have some fuel left in the tank.
