Oil prices have surged significantly due to the impact of the Iran conflict, but Wells Fargo believes this rally is nearing its end, suggesting investors cash in on energy sector gains while prices remain elevated. Following energy commodities recording their strongest performance since 2000 this year, Wells Fargo analysts issued a research report on Tuesday indicating that now is the time to consider taking profits in the energy sector. The bank downgraded its rating on energy commodities from "neutral" to "underweight." At the same time, the bank raised its 2026 oil price target range—increasing the year-end target for WTI crude to $70–$80 per barrel and Brent crude to $75–$85 per barrel. This stance is significant for energy stock investors. Wells Fargo explicitly stated that the recent outperformance of the energy sector presents a window to lock in profits and shift capital to industrial and precious metals, both of which currently hold "overweight" ratings from the bank.

Oil prices are trading at high levels, but downside risks are accumulating. Since the outbreak of the Iran conflict, global crude oil supply has been severely constrained, driving prices significantly higher, far exceeding pre-conflict levels below $70 per barrel. Currently, U.S. crude futures for May delivery are trading around $90 per barrel, with the market digesting uncertainties surrounding the prospects of renewed U.S.-Iran negotiations. Despite this, Wells Fargo's assessment is that the risk direction for oil prices this year has shifted from upward to downward. The bank's analysts noted in the report that energy commodities have posted their strongest year-to-date gains since 2000, and after recording a record monthly increase in March, the cost-effectiveness of further chasing the rally has diminished substantially.

Historical precedents serve as a warning: geopolitical premiums are difficult to sustain. Wells Fargo investment strategist Mason Mendez cited historical cases to support this view. He pointed out that oil markets have always been highly volatile, with prices swinging rapidly as risks emerge or subside. Although each period is different, past examples—such as the Gulf War in the 1990s and the Russia-Ukraine conflict in 2022—demonstrate that high oil prices are often short-lived, tending to decline once supply risks fade. Mendez also acknowledged that geopolitical risk premiums will not completely dissipate in the short term, particularly if energy infrastructure is attacked in the coming weeks, which would provide some support for oil prices and limit a drop back to last year's lows. This is why Wells Fargo, while downgrading the sector rating, still chose to raise its year-end oil price targets.

Wells Fargo's strategic advice is not merely to "sell" but also to specify where capital should be redirected. The bank clearly rates industrial metals and precious metals as "overweight," viewing the recent outperformance of the energy sector as a favorable opportunity for investors to shift allocations toward these two asset classes. The rationale behind this allocation is that, compared to the energy sector, which has already fully priced in geopolitical premiums, industrial and precious metals offer more certain upside potential and a superior risk-reward ratio in the current macroeconomic environment.