Crude's Sudden Rally Raises the Stakes for These 2 Energy Stocks

The geopolitical conflict in the Middle East has impacted energy markets in exactly the same way as previous such events: oil and natural gas prices are rising. There have been dramatic price swings, so there's still significant uncertainty about energy prices. But it is very clear that higher energy prices are good news for pure-play energy producers like Devon Energy (NYSE: DVN) and Diamondback Energy (NASDAQ: FANG). But there are risks to consider here, as well.

Rising energy prices mean higher profits

Up front, the news for Devon Energy and Diamondback Energy is very good. They both produce oil and natural gas in the United States, so their production will continue uninterrupted. In the fourth quarter of 2025, Devon Energy's total oil equivalent production averaged 850 MBoe per day. Diamondback Energy's production that quarter came in at 969 MBoe per day. They will both benefit materially from the ability to sell their production at higher price points, thereby increasing revenue without materially increasing costs.

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Wall Street clearly recognizes the opportunity, as Devon Energy's shares are up roughly 19% year to date as of this writing, and Diamondback Energy's stock is up 18%. By comparison, the S&P 500 index (SNPINDEX: ^GSPC) is down about 1%. Herein lies a potential problem.

Sometimes WTI and Brent diverge

With Wall Street clearly excited about the prospects for these two U.S. energy companies, what happens if the story doesn't play out as hoped? That could happen for a number of reasons.

For example, both companies hedge their exposure to energy prices. That could limit the near-term benefit of higher commodity prices. If earnings don't meet investor expectations, enthusiasm for these stocks could quickly fade. And even if the companies manage to lock in higher prices for some period of time, the benefit will eventually end. Given that Wall Street tends to be forward-looking, investors are likely to price in the impact of hedges rolling over to lower levels rather quickly.

There's also the risk that U.S. energy prices, as measured by West Texas Intermediate (WTI) crude, don't align with global energy prices, as measured by Brent crude. After all, U.S. production isn't likely to be materially impacted, and the U.S. is the key market for that production. WTI and Brent have diverged materially in the past, and it could easily happen again.

In the energy sector good news can quickly turn into bad news

All in, investors need to be careful that Wall Street doesn't get ahead of itself with these two U.S. producers. The risk shareholders face if that happens could be material.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.