MW A sudden end to the Iran war would strike a blow against oil prices and energy stocks. Yet company insiders are buying.

Michael Brush

The implication is a belief among insiders that the stocks are going higher from here, not lower

A screen capture from a video released by U.S. Central Command on Sept. 8, showing what the U.S. military said was a strike on an Iranian tanker in the Gulf of Oman.

Given the pressure that higher energy prices and the Middle East conflict are putting on the global economy, it makes sense to think President Donald Trump and Iranian leaders might find a way out of the crisis relatively soon.

In this scenario, oil prices (WBS00) (CL00) (BRN00) would drop quickly, and so would energy stocks NYE.ID.

There's one problem with this positive outlook: Energy-sector insiders aren't buying it. Instead, they are buying their stocks - suggesting they think the stocks go higher from here, not lower.

In the past few months as oil prices and energy stocks climbed, insiders at over 35 energy companies have put around $55 million into their stocks.

Some of the bigger examples since late May include the U.S. energy producers Matador Resources (MTDR), where insiders including the CEO and CFO have purchased over $1.5 million in stock, and Vitesse Energy (VTS), where a director bought $1.6 million in shares. The CEO at the refiner HF Sinclair (DINO) bought shares worth $1.3 million in mid-August.

True, the insider buying has happened at smaller energy companies, not at giants like Chevron $(CVX)$ or ExxonMobil (XOM). But that doesn't mean the insiders know the sector any less. In my experience, stretching over two decades, of tracking insiders, sectorwide buying like this - even at smaller companies - is a bullish signal.

What explains the insider buying at a time when energy prices and stocks might soon retreat hard? I recently spoke with some energy-company insiders and sector analysts to find out. Following are three reasons for the disconnect.

Reason No. 1: Energy prices will stay higher for longer

Energy-sector veteran Rob Thummel, who helps managed the Tortoise Energy Fund TNGY, thinks the war with Iran will end after the U.S.'s midterm elections. But the new price floor for West Texas Intermediate crude, or WTI, will be $75, or around $10 above where it traded prewar. That's because traders will price in geopolitical risk again, and countries have to rebuild oil inventories, Thummel told me in a recent interview.

"I don't know if 'back to normal' will happen any time soon. Everybody has been saying that for a while, but it just hasn't happened yet," he said. The International Energy Agency recently pushed its timeline for normalized Middle East energy flows into 2027 from late 2026 previously.

Energy companies can make decent returns on capital with oil at $75, according to Thummel, and this helps explain insider buying.

Near term, energy prices could even go much higher, and insiders might be making this bet. WTI could trade up to $120 or $130 as the war drags on, said Ben Cook, who manages the Hennessy Midstream Fund HMSIX. "This is not a situation that looks like it is de-escalating in any way. Given that both sides are dug in and Trump wants Iran denuclearized, it is unlikely we are going to see any peace agreement soon," Cook told me in a recent interview. Oil hit $120 and $130 in the early stages of the Russia-Ukraine war. A repeat would send gasoline up to $5 a gallon or higher.

Natural gas (NG00) prices in Europe and Asia are especially high. Natural gas recently traded for around $27 per million British thermal units (MMBtu) in those regions, compared with just under $3 in the U.S. There's an investing angle here. This will continue to benefit companies that source natural gas in the U.S. to sell it in Europe and Asia, noted Thummel. He singled out Cheniere Energy (LNG) and Venture Global (VG).

Reason No. 2: Energy production outside the Middle East will pick up big time

"There is a new understanding that there are permanently going to be concerns about the security of energy because so much of it comes out of the Middle East," says energy-sector expert and value investor Bob Robotti of Robotti & Co. Advisors, whose value equity strategy has outperformed the S&P 500 SPX by 20.3 percentage points this year through the end of August. "International offshore oil is where energy security is going to be, on a worldwide basis," Robotti told me in a recent interview.

This is one reason Robotti owns Subsea 7 SA $(SUBCY)$, which helps energy companies develop offshore production. Robotti is of the view that Subsea 7 SA might get bought out, possibly by the offshore-drilling contractor Noble (NE).

"Energy companies understand there are going to have to be multiple sources of supply outside the Middle East," agreed Kurt Hallead, the treasurer and head of investor relations at Tetra Technologies (TTI), where a director and officer were recently buying stock.

The company sells chemicals used in energy production called completion fluids, mainly to deepwater producers in the North Sea and off the coast of Brazil and the U.S.

Since the start of the war, drilling contracts at these companies have picked up. "The war has accelerated those projects," Hallead told me in an interview. This should help Tetra meet its goal of roughly doubling revenue in the next four years compared with September 2025.

The new emphasis on energy security also favors Canadian oil and gas companies, said Robotti.

"Today, given energy-security issues, the rest of the world is saying, 'Canada is a stable place - how do I get in?' " he said. Earlier this month, for example, Shell $(SHEL)$ closed on a deal to buy the Canadian oil and gas producer ARC Resources, its biggest purchase in a decade. Robotti owns the producer Tourmaline Oil (CA:TOU), one of Canada's largest natural-gas producers, in which insiders have been buying stock. "But if you close your eyes and pick one of them, you will do well," he quipped.

"The relative winner in all this is the midstream space in the U.S.," said Cook at the Hennessy Midstream Fund. "The world will continue to look at the U.S. as reasonably safe supply." Here, he singled out Expand Energy $(EXE)$, where the CEO and CFO bought around $540,000 in stock in May and June, and Williams Cos. $(WMB)$.

Besides the names mentioned above, other U.S. energy producers, services and pipeline companies with particularly strong insider buying include Energy Transfer (ET), Mammoth Energy Services $(TUSK)$, Infinity Natural Resources (INR), Northern Oil and Gas (NOG), Solaris Energy Infrastructure (SEI) and Alpha Metallurgical Resources (AMR) in coal.

Reason No. 3: Energy stocks look relatively cheap

Smaller energy companies trade at steep discounts to tech and other parts of the market, noted Ben Messier, the director of investor relations and business development at Vitesse Energy, which owns stakes in U.S. energy projects in the North Dakota, Colorado and Wyoming. They typically have low enterprise-value-to-Ebitda multiples of four or five, and high free-cash-flow yields of 10% to 15%. This could explain the insider buying.

"We remain overweight the group and believe investors should consider adding positions even with $100-a-barrel oil prices," William Blair energy sector analyst Neal Dingmann wrote in recent research note, citing the same double-digit free-cash-flow yields.

One reason the shares of so-called smid-cap energy stocks that insiders are buying look cheap is that they have failed to keep up with oil prices, Messier told me in a recent interview. Since the start of the Iran war on Feb. 28, the State Street SPDR S&P Oil & Gas Exploration and Production exchange traded fund XOP is up 30% compared with a 55% advance for WTI.

At the time of publication, Michael Brush owned MTDR, LNG and VG. Brush has suggested MTDR, LNG, VG, WMB and ET in his stock newsletter, Brush Up on Stocks.

-Michael Brush