The S&P 500 Just Hit a 3-Month Low, But Oil Stocks Are Surging. Should Investors Join the Crude Oil Rally?

The S&P 500's rally has fizzled out this year. It recently dropped to three-month low, giving back all its gains for 2026. One factor weighing on the broader market index is the rally in crude oil prices, fueled by the war with Iran. Surging crude prices have driven up oil stocks this year.

Here's a look at whether investors should join in the rally and buy oil stocks.

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Oil prices are up, and could continue rallying

WTI, the primary U.S. oil price benchmark, has rocketed nearly 30% this year to around $75 per barrel. The sole catalyst is the conflict with Iran. The country is a major global oil producer. On top of that, it's trying to stop the flow of oil out of the Middle East in retaliation against military strikes within the country.

Around 20% of global supplies move through the Strait of Hormuz in the Persian Gulf. Iran is trying to prevent oil from moving through this narrow part of the Gulf by launching direct attacks on crude transport ships. It has also threatened to attack the oil infrastructure of neighboring Gulf nations.

The U.S. is working to ensure oil continues to flow through the Gulf. The U.S. government has offered to provide insurance after carriers canceled policies and is considering using the Navy to escort ships through the Strait. If oil continues to flow from the Gulf, it should help keep crude prices from rising further. However, if Iran impedes shipments or severely damages oil infrastructure in the Gulf, crude prices could soar to more than $100 a barrel.

The safest oil stocks to buy in the current environment

There's a lot of uncertainty in the oil market these days. Given these conditions, investors should focus on the safest oil stocks. The top tier includes big oil behemoths ExxonMobil (NYSE: XOM) and Chevron (NYSE: CVX). They boast large-scale, globally integrated operations. Both have an abundance of low-cost supplies and fortress balance sheets. As a result, both expect to thrive in the coming years, even if oil prices cool off.

For example, Exxon's plan to 2030 would see the oil giant grow its earnings at a 13% average annual rate while delivering double-digit cash flow growth. Exxon can achieve that high-octane growth rate at an average oil price of $65 per barrel. The company's plan relies on its industry-leading cost-savings initiatives and a large pipeline of high-return major growth capital projects.

Chevron also has a strong growth profile. It expects to produce an additional $12.5 billion of free cash flow this year at an average oil price of $70 a barrel, fueled by recently completed expansion projects and its acquisition of Hess. Meanwhile, Chevron expects to deliver more than 10% annual free cash flow growth through 2030 at $70 oil, driven by additional expansion projects and its cost-savings initiatives.

Tread carefully

Oil prices could keep soaring or give back some of their recent gains, depending on what happens in the Middle East. Given this uncertainty, investors seeking to join the rally should focus on the safest oil companies, Exxon and Chevron. They offer upside potential to rising oil prices, while still able to thrive if oil cools off.

Matt DiLallo has positions in Chevron. The Motley Fool has positions in and recommends Chevron. The Motley Fool has a disclosure policy.