By Jessica Menton
Energy shares are sliding this week despite oil's climb -- a divergence some analysts say could linger if geopolitical tensions in the Middle East continue to escalate.
The relationship between oil prices and shares of oil-producing companies has weakened recently after Iran shot down a U.S. military drone last week. Shares of energy companies in the S&P 500 fell 0.8% Tuesday and are down 1.7% so far this week. The sector has shed 5.5% this quarter, on pace for its worst quarterly percentage drop since the broader-market selloff in the final three months of 2018.
Energy stocks in the S&P 500 have shed 15% over the past 12 months amid fears of oversupply and worries about slowing demand in a weakening global economy.
The most recent declines come as U.S. crude prices have rallied roughly 9% over the past week amid rising friction between Washington and Tehran, though oil prices pulled back from multiweek highs Tuesday.
"Investors are looking through the recent strength in oil prices because they don't buy that the recent geopolitical tensions will shoot oil materially higher, or the idea that demand for crude will remain at steadfast levels," said Mike Tran, managing director and global energy strategist at RBC Capital Markets.
Declines in shares of oil conglomerates Exxon Mobil Corp. and Chevron Corp. weighed on the energy sector Tuesday, falling 0.9% and 1%, respectively. Each have lost more than 1% this week.
Meanwhile, oil-field services companies have also been among the hardest hit this week within the S&P 500's energy sector, a corner of the energy market that has been vulnerable as crude production has slowed, some analysts said. Shares of Baker Hughes and Halliburton Co. have shed at least 1.5% this week and were mildly lower Tuesday.
The slide may not last, however, if the U.S. and Iran don't reach a detente soon.
"As geopolitical tensions escalate and there's risk that gets priced back into oil prices, it'll be something that equity investors just simply can't ignore," Mr. Tran said.
Write to Jessica Menton at Jessica.Menton@wsj.com