Here's a fun fact for your next market trivia night: energy stocks are currently doing something they've never done before. They're on track to post their best quarterly outperformance against the S&P 500 ever. And we're not just talking about beating the old record by a little—we're talking about a gap so wide it makes even the post-Ukraine oil shock rally of 2022 look modest.

Let's put some numbers on this historic run. The Energy Select Sector SPDR Fund (XLE) has surged over 40% since the start of the year. Meanwhile, the S&P 500, tracked by the SPDR S&P 500 ETF Trust (SPY), is sitting down roughly 6%. That's a performance chasm of nearly 50 percentage points in just one quarter. Yet, according to analysts at Goldman Sachs, here's the kicker: the sector still doesn't fully price in the structural shift that's underway.

Energy Numbers Define a Historic Quarter

March alone saw the XLE ETF jump 11.4%, marking its third straight month of gains and capping this record-breaking quarter. The rally has been broad-based, too. Fourteen of the 22 constituents in the XLE have rallied more than 10% just in March.

Leading the charge was APA Corporation (APA) with a staggering 44.23% monthly gain. It was followed by a pack of other energy heavyweights: Occidental Petroleum Corporation (OXY) (+25.48%), Marathon Petroleum Corporation (MPC) (+25.24%), Valero Energy Corporation (VLO) (+23.21%), and EOG Resources Inc. (EOG) (+21.05%).

But here's the interesting part. Despite this powerful rally, most energy names are still trading at a meaningful discount to the broader market when you look at their valuations. The party hasn't made them expensive by historical standards—at least not yet.

Best Performing Energy Stocks in March 2026

To give you a clearer picture of who's driving this bus, here's a look at the top performers from the XLE basket in March, complete with their monthly returns and forward price-to-earnings ratios (P/E NTM).

Oil & Gas Stocks Are Still Trading As If Oil Is $71: Goldman Sachs

So what's fueling this historic run? The immediate catalyst is a map problem. Specifically, the Strait of Hormuz. The ongoing conflict involving Iran has disrupted an estimated 13.1 million barrels of oil per day in net flows. That's a lot of oil that isn't moving, and the market has noticed.

Both WTI and Brent front-month crude futures have surged past $100 a barrel. But the rally in energy company stocks has been, in Goldman's view, surprisingly disciplined. The stocks aren't pricing in $80 or $90 oil. They're pricing in something much more conservative.

According to Goldman Sachs analysts, oil exploration and production (E&P) companies are currently discounting a WTI price of approximately $71 per barrel. That's well below the elevated front-month price you see on the news. Why? Because equity investors are being cautious. They're anchoring their valuations to the longer-dated oil forward curve—essentially, where the market thinks oil will be in the future—rather than reacting wildly to the spike in the spot price today.

This conservatism is why Goldman argues the valuation case for energy stocks remains intact even after a 40% rally. It's not that the market doesn't believe oil is over $100 right now; it's that the market isn't convinced it will stay there forever.

"Despite the significant increase in the front-month oil price, oily E&P equities have modestly increased since the start of the Iran conflict—the equities are discounting a longer-dated view of the oil forward curve," said Neil Mehta, head of Energy, Utilities & Mining Research at Goldman Sachs in a recent note.

With Brent crude trading around $108 per barrel, the implied gap is enormous. That roughly $37 difference between what oil and gas equities are pricing in and where front-month futures are trading sends one of two stark messages. Either it signals a continuing buying opportunity in energy stocks because they haven't caught up to reality, or it's the market's way of betting that the war and its disruptions will end sooner than the current panic suggests.

Goldman's Two Scenarios: The Base Case and The 2008 Record

Goldman lays out two potential paths forward, and they're worlds apart.

The base case is the orderly one. In this scenario, flows through the Strait of Hormuz gradually recover. Strategic petroleum reserves from OECD countries are released to absorb part of the supply shock. As a result, Brent crude moderates back toward the $70s by the end of the year. At that price, E&P equities—which are already only discounting $71 WTI—remain well-supported. The thinking is there's limited downside from here, with a credible path for these stocks to re-rate toward their mid-cycle valuations.

Then there's the tail risk. The scary one. Goldman's head of oil research, Daan Struyven, calculates that if Hormuz flows stay suppressed for more than 60 days and Middle East production falls by 2 million barrels per day for an extended period, Brent crude could surge an additional $42 per barrel above current levels through the end of 2027. That would mean breaching the all-time intraday record of $147.50 set during the 2008 financial crisis.

If that latter scenario plays out, the current gap between what E&P equities are discounting and where spot oil is trading wouldn't just be a buying opportunity. It would represent one of the most dramatic mispricings in the history of energy markets. The stocks would have a colossal amount of catching up to do.

So there you have it. Energy is having its moment in the sun, outperforming the broader market by a historic margin. But according to the analysts on Wall Street, the story might not be over. The stocks have run hard, but they're still pricing in a world that looks a lot calmer and cheaper than the one reflected in today's headlines. Whether that's savvy caution or a massive blind spot is the trillion-dollar question for the quarter ahead.