Market Commentary: The Strait of Hormuz Blockade Goes On

As of this writing, the blockade of the Strait of Hormuz continues with little sign of reopening. President Trump’s May 13–15 visit to Beijing with President Xi Jinping seemingly produced few tangible results. Despite both sides calling for a rapid reopening, there was no sign of a breakthrough between the two superpowers on how to achieve that. Both leaders agreed that the Strait of Hormuz must remain open to support the free flow of energy. President Xi also reiterated China’s opposition to the militarization of the Strait and any effort to charge

a toll for its use.

Separately, the U.S. allowed three Chinese tankers filled with Iranian oil to transit the Strait during summit week. Markets reflected the lack of a firm deal—Brent crude rose above $108/Bbl on May 15. The IEA has warned that the oil market could remain materially undersupplied through October even if the conflict is resolved next month.

S&P 500 Sector Performance Since Start of War (2/27–5/22/26)

Source: Bloomberg

WHY HAS ENERGY LAGGED?

Counterintuitively, the Energy Sector has underperformed the S&P 500 since the start of the war. The S&P 500 has appreciated 8.8% led by a fairly narrow rally in technology stocks while the Energy Sector has appreciated 5.7%. Technology stocks have been propelled by exceptional earnings growth fueled by artificial intelligence (AI) related expenditures that are largely insulated from higher energy input costs.

In addition to investor preference for growth stocks as embodied in the technology sector, the backwardation of the futures curve—in which WTI oil prices 12 months out are trading below $80 per barrel vs under $100 per barrel for the prompt month—suggests that any earnings and cash flow uplift for the energy sector may be short lived upon resolution of the war. However, we believe the consequences of the Iranian War will be longer

lasting.

HERE’S WHY:

1. Market is tighter than future markets show. Energy management teams and analysts maintain that the physical market is tighter than that indicated by the futures market (this view was recently reinforced by Enterprise Products Partners’ co-CEO Jim Teague during our Fireside Chat). The futures market is a poor predictor of prices. It however may be a good indicator of sentiment. It is widely used by market participants to hedge and manage risks.

   
   

2. Restoring production takes time. It will take months to restore production to pre-war levels primarily due to logistics and damage to infrastructure. The IEA estimates that global oil supply is down by 12.8 mb/d (nearly 12%) since the start of the war to 95.1 mb/d per its 5/13/26 Oil Market Report.

   
   

3. Storage is being depleted. Global observed oil inventories drew by 129 million barrels (mb) in March and by a further 117 mb in April as reported in the IEA Oil Market Report. The IEA estimates that it will take 1 million barrels per day (mbpd) for three years to refill storage and strategic petroleum reserves (SPR) to normal levels. Even then countries may want to increase their storage to above pre-war levels as a matter of insurance against potential future supply disruptions.

   
   

4. Global demand destruction has been largely supply-driven rather than price-driven. This is most evident in Asia’s dependence on Mideast oil. Little evidence thus far that U.S. consumption has been affected. (Please see last month’s Market Commentary)

Source: IEA Oil Market Report (5/13/26)

5. U.S. exports have ramped up. We suspect that U.S. exports may remain elevated following the reopening of the Strait of Hormuz as countries permanently diversify supply away from Gulf countries to reliable sources such as the U.S. Bloomberg reported that exports temporarily hit a record above 6 million bpd in late April before pulling back slightly. This compares to 3.9 million bpd exported in February before the start of the war.

   
   

6. U.S. producer response has been muted thus far. (Please see the EPD slide below). Diamondback Energy, Inc. (NYSE: FANG) is among the few publicly traded producers that has increased production. In its first quarter earnings to stockholders the company stated, “we believe there is a legitimate supplydemand imbalance and that the associated price signal is the catalyst to begin growing production…and maintain our current production level of over 520,000 Bo/d – up 3% from our original 2026 guidance.”

Source: Enterprise Products Partners L.P

OUR BOTTOM LINE: ENERGY SECURITY IS NATIONAL SECURITY

The Russian/Ukraine and now Iranian War underscores the importance of reliable and affordable energy, i.e., oil, natural gas, and coal. The narrative has shifted away from clean energy as the remedy to climate change and quenching the world’s thirst for energy to a more pragmatic view of its supporting role to the oil and gas

industry (at least in the foreseeable future).

The durability and sustainability of the oil and gas industry is underappreciated by investors, in our view. As we’ve pointed out before, the energy sector represents less than 4% of the S&P 500 and well below its peak of 16% (in 2008). Our preferred way to invest in the sector is via midstream companies that provide the vital infrastructure to connect growing oil and gas production to domestic and global markets.

Many investors may miss the boat if they solely focus on the subsector’s current valuation, which screens “fair” based on average historical valuations such as multiples of cash flow (such as enterprise value-to-EBITDA).

CONTEXT MATTERS!

Half of the time companies trade at their average valuation and the other half they trade below their average. Notably, midstream is trading at an average EV-to-EBITDA multiple of 10.5x (in-line with the 10-year average) but well within the high of 18.5x in Q3’14 and low of 7.8x in Q1’20, according to Wells Fargo’s Midstream Monthly Outlook: May 2026 report. Given the strong balance sheets, adherence to fiscal discipline, attractive returns on growth investments, and durable cash flows, we believe the midstream sector provides investors with an attractive value proposition of high current income plus growth.

SAM Partners’ largest portfolio holdings are in those companies levered to the secular growth in natural gas consumption and hydrocarbon exports (e.g., natural gas and LPGs).

KEY TAKEAWAYS FROM ENTERPRISE PRODUCTS PARTERNES L.P. (NYSE: EPD)

On April 30, SAM hosted a Fireside Chat with Enterprise Products Partners’ co-CEO Jim Teague and co-CEO Randy Fowler. Enterprise is a leading fully integrated midstream company, touching all major commodities across the entire value chain—from wellhead to water. Click here to watch the video replay. Read highlights from our chat below:

• The Middle East conflict has sharply accelerated global demand for U.S. energy exports. Asia has historically depended on the Arabian Gulf for oil and gas; with those flows disrupted, countries like Japan, South Korea, and Southeast Asian nations are drawing down inventories and scrambling for alternatives. Enterprise expects to export a record ~88 million barrels (~3 mb/d) of hydrocarbons in April.

  
  

• The physical oil market is tighter than what the futures curve implies. Jim Teague stated flatly that the futures market likely needs to move higher. Global inventories are acting as a buffer but are being drawn down at a rate of hundreds of millions of barrels per month. Even if the conflict ends soon, logistics delays mean supply tightness will persist well beyond a ceasefire. Some investors are already telling producers to stop hedging—a notably bullish signal.

  
  

• Permian production growth is increasing, with natural gas and natural gas liquids (NGLs) growing fastest. In April, Enterprise revised its 2030 Permian forecast upward to 7.5 million barrels per day of total liquids, ~35 Bcf/day of natural gas, and nearly 5 million barrels per day of NGLs. Natural gas and NGLs are expected to grow approximately 1.6x faster than crude. Due to its integrated system, Enterprise benefits from every incremental molecule of gas and NGLs that it can gather, process, fractionate, and export.

Source: EPD Fundamentals, April 2026

• Demand destruction is largely supply-driven, not price-driven — and the U.S. is insulated. While demand destruction is occurring globally — airlines cutting routes, behavioral changes at high fuel prices — much of it reflects supply unavailability rather than consumer price resistance. There is little evidence of U.S. demand being materially affected. The U.S. petrochemical industry is actually benefiting significantly, with plants running at full capacity as ethane and LPG prices surge.

  
  

• Enterprise’s wellhead-to-water integration is a durable competitive advantage. Enterprise processes, transports, fractionates, stores, and exports hydrocarbons — touching an NGL barrel up to eight times before it reaches market. Approximately 90% of revenues are contracted, providing stable cash flows, while operational flexibility allows the company to capture spot market upside. The company entered the current period largely unhedged, creating significant upside as commodity prices rose.

  
  

• Capital allocation is disciplined and shareholder-friendly, with distributions as the primary return of capital. Enterprise has raised its distribution for 27 consecutive years. Management prioritizes organic growth (~$5.3B of projects underway, including export terminal expansions and the Bahia Pipeline to transport 1 million bpd), followed by targeted acquisitions, distributions, buybacks, and debt reduction. Distribution growth is tied to sustainable free cash flow — not transitory commodity upside. Employees and insiders own ~35% of units, closely aligning management with unitholders.

  
  

• The MLP valuation gap remains significant and underappreciated. MLPs trade at a discount to comparable C-corps due to limited institutional ownership and exclusion from major indices. Enterprise’s asset base is irreplaceable, and the market has yet to fully reflect the value of the company’s strategic position. Permitting reform is critical to unlocking the next phase of infrastructure buildout, particularly for pipelines and LNG export facilities.

APRIL: ENERGY COOLS WITH CRUDE

The rundown:

• In April, SAM’s Infrastructure Income Portfolio produced a return (net of fees) of 2.9% compared to 10.5% for the S&P 500 and 5.0% for its customized benchmark. The performance relative to benchmark reflect our overweight in midstream and lower weights in the utilities and clean energy sectors.

  
  

• In April, SAM’s Energy Transition Portfolio generated a return (net of fees) of 5.2% vs 8.5% for its customized benchmark.

  
  

• SAM’s portfolios are more heavily weighted in Midstream, which underperformed relative to the clean energy sector and was comparable to utilities in April.

  
  

• Midstream underperformed the overall market and was up in April with a total return of 2.6% as measured by the AMNAX.

  
  

• In April, the clean energy sector outperformed the overall market, generating a total return of 14.5% as measured by the S&P Global Clean Energy Index (SPGTCLTR). For the month, utilities underperformed the market with a total return of 2.6% as measured by the Philadelphia Stock Exchange Utility Index (XUTY).

  
  

• Except for Energy and Healthcare, all sectors’ performance in the S&P 500 was positive. Energy was the worst performer and Technology was the best. Energy delivered a -3.5% monthly total return. April month-end WTI crude oil and Henry Hub natural gas prices were $108.64 per Bbl and $2.64 per MMBtu, up ~6% and down ~8%, respectively from last month.

RESULTS: SINCE INCEPTION & ONE YEAR

SAM’s Infrastructure Income Portfolio produced a return (net of fees) of 202.5% and 32.8% for the periods since 11/10/20 inception and 1-year, respectively. This compares to a total return of 193.2% and 39.5%, respectively, for its customized benchmark and 120.2% and 31.1%, respectively, for the S&P 500 as of 4/30/26.

SAM’s Energy Transition Portfolio generated a return (net of fees) of 61.6% and 45.1% for the periods since 4/29/21 inception and 1-year, respectively. This compares to a total return of 71.2% and 54.2%, respectively, for its customized benchmark and 84.1% and 31.3%, respectively, for the S&P 500 as of 4/30/26

Sam Partners’ Infrastructure Income and Energy Transition Strategies seek to provide sustainable income and growth with capital preservation. This is accomplished by investing in a concentrated portfolio of high-quality midstream energy companies, utilities and clean energy companies that are well positioned to participate in the energy transition to a net zero carbon future. A diversified approach to investments across these sectors should optimize risk-adjusted returns, in our view. Our Infrastructure Income Strategy offers investors a current yield of ~4% and growth potential of ~5-7%; while the Energy Transition Strategy that is more heavily weighted with clean energy stocks and aligns with favorable ESG ratings, offers investors a current yield of ~3.0%. In a world searching for yield, we believe these Strategies offer a compelling value proposition.

IMPORTANT DISCLOSURES

Siegel Asset Management Partners is a registered investment advisor located in Plainview, New York. The views expressed are those of Siegel Asset Management Partners and are not intended as investment advice or recommendation. This material is presented solely for informational purposes, and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. Information is obtained from sources deemed reliable, but there is no representation or warranty as to its accuracy, completeness, or reliability. All information is current as of the date of this material and is subject to change without notice. Third-party economic, market or security estimates or forecasts discussed herein may or may not be realized and no opinion or representation is being given regarding such estimates or forecasts. Certain products and services may not be available in all jurisdictions or to all client types. Unless otherwise indicated, Siegel Asset Management Partners' returns reflect reinvestment of dividends and distributions. Indexes are unmanaged and are not available for direct investment. Investing entails risks, including possible loss of principal. Past performance is no guarantee of future results.