As Oil Prices Oscillate at High Levels, Wells Fargo Advises: It's Time to Take Profits on Energy Stocks!

Oil prices have risen sharply due to the impact of war in Iran, but Wells Fargo believes this rally is nearing its end and investors should capitalize on high levels to lock in profits from the energy sector.

Following the best annual performance for energy commodities since 2000, Wells Fargo analysts released a research report on Tuesday stating that it is now time to consider taking profits in the energy sector, downgrading their rating for the commodity energy sector from "Neutral" to "Underweight."

At the same time, the bank raised its 2026 oil price target range—lifting the year-end WTI crude oil target to $70–80 per barrel and the Brent crude target to $75–85 per barrel.

This statement 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 metals and precious metals, both of which currently hold a "Overweight" rating with the bank.

Oil Prices Remain Elevated, but Downside Risks Are Accumulating

Since the outbreak of war in Iran, global crude oil supply has been severely constrained, pushing prices significantly higher than the pre-war level of under $70 per barrel. As of now, May-delivery US crude oil futures are trading at $90 per barrel, as the market digests uncertainty surrounding new prospects for US-Iran negotiations.

Despite this, Wells Fargo's assessment is that the risk direction for oil prices within the year has shifted from upside to downside. Analysts wrote in the report that the year-to-date gain in energy commodities is the strongest since 2000, and after recording a record-breaking monthly surge in March, the cost-benefit ratio of chasing further gains has dropped significantly.

Historical Precedents Warn: Geopolitical Premiums Are Unsustainable

Wells Fargo Investment Strategy Analyst Mason Mendez cited historical cases to support this judgment. He noted that oil markets have historically been highly volatile, with prices swinging rapidly as risks emerge or subside. While each period has its unique characteristics, past examples—such as the Gulf War in the 1990s and the Russia-Ukraine conflict in 2022—indicate that high oil prices are often short-lived; once supply risks dissipate, prices tend to fall back.

Mendez also acknowledged that geopolitical risk premiums will not fully disappear in the short term, especially if energy infrastructure faces attacks in the coming weeks, which would provide some support for oil prices and limit a drop back to last year's lows. This explains why Wells Fargo chose to raise its year-end oil price target while simultaneously downgrading the sector rating.

Wells Fargo's strategic advice goes beyond simply "selling"; it also points to where capital should flow. The bank explicitly lists industrial metals and precious metals as "Overweight," arguing that the recent outperformance of the energy sector offers investors a favorable opportunity to rotate positions into these two asset classes. This allocation logic rests on the view that, compared to the energy sector which has already fully priced in geopolitical premiums, industrial metals and precious metals possess more certain upside potential and superior risk-reward ratios in the current macroeconomic environment.