WTI crude fell to $91.73 on Monday morning, down more than 5% from Friday's close, after U.S. President Donald Trump declared Saturday that a peace deal with Iran to reopen the Strait of Hormuz was "largely negotiated." Brent fell to $98. The drop was sharp, fast, and entirely predictable given the diplomatic backdrop. What is also predictable -- and what the research on investor behaviour documents with consistent precision -- is the response it will produce in retail investors holding appreciated Canadian energy positions.
They will want to sell.
Not because the fundamentals have changed. Not because Suncor or Canadian Natural Resources or Enbridge has become a worse business. Because the gain is visible, the news is positive, and the psychological logic of locking in profit feels like prudence. It is not prudence. It is the disposition effect, and understanding its mechanism is the difference between an advisor who prevents a costly decision and one who receives a call after it has already been made.
The Shefrin-Statman Framework
Hersh Shefrin and Meir Statman published their foundational study of the disposition effect in 1985, documenting the systematic pattern by which investors sell winning investments too quickly and hold losing investments too long. The name comes from the tendency to "dispose" of gains. The mechanism is prospect theory, the framework Kahneman and Tversky established in 1979: because losses hurt approximately twice as much as equivalent gains feel good, investors become risk-averse when they are sitting on a gain and risk-seeking when they are sitting on a loss.
In practical terms: an investor holding a Canadian energy stock up 40% since March is operating in the "gain domain" of prospect theory. Their brain is not evaluating whether to hold. It is evaluating the probability of losing the gain. The question it is actually asking is not "is this still a good investment?" but "what is the chance I give this back?" The moment oil prices drop on peace deal news, the answer to that question shifts -- and the impulse to sell activates.
Terrance Odean's 1998 study, using a dataset of 10,000 brokerage accounts, confirmed the pattern quantitatively: investors sold their winners 68% more readily than their losers. More importantly, the stocks they sold at a gain subsequently outperformed the stocks they held at a loss by approximately 3.4 percentage points over the following year. The act of crystallizing the gain was, on average, a mistake.
Why This Oil Drop Is a Specific Trigger
The chart below shows WTI crude's price path from February 28 through May 25, 2026 -- the full arc of the Hormuz disruption -- and positions the Monday morning drop in its context.
WTI surged from $61.20 on February 28 to a cycle peak of $110.93 as the Hormuz closure took effect March 4; the April 8 ceasefire produced the first sharp pullback before prices resumed their rise into May. The May 25 drop to $91.73 on peace deal headlines represents the largest single-day decline since the April 8 event, occurring against a backdrop of still-significant supply uncertainty.
The chart above shows the full WTI arc from conflict onset to this morning's drop -- and why the drop, while real, does not change the structural picture that drove Canadian energy stocks to their current elevated levels.
The specific psychological risk today is this: an investor who bought Suncor in early March is sitting on a gain measured in tens of percentage points. The May 25 decline looks, to the investor's gain-sensitive brain, like the beginning of the unwinding. The peace deal is the narrative that makes selling feel rational. Shefrin and Statman would call this a "framing" of the gain realization -- the narrative provides psychological cover for a decision the brain was already inclined to make.
What the Research Says About Selling on News
Odean's 1998 study found that the stocks most commonly sold by retail investors on positive news events -- exactly the situation of an energy stock sold on peace deal progress -- returned an average of 3.4 percentage points more than the market over the subsequent twelve months, compared to the losers the same investors chose to hold. The act of selling the winner is predictably costly, not protective.
The mechanism runs deeper than the disposition effect alone. Richard Thaler's mental accounting framework explains the reinforcing dynamic: investors create separate mental accounts for different investments, and once a mental account is "in profit," the psychological pressure to close it and realize the gain becomes its own motivating force, independent of any rational assessment of the investment's prospects. The energy gain, sitting in its own mental account, exerts pressure to crystallize precisely because it is large enough to register as significant.
The appropriate question an investor should ask -- "is there a better use of this capital right now than holding this energy position?" -- is not the question the disposition effect allows them to ask. Instead, the question becomes "how much of this gain am I willing to risk on the peace deal?" That is a different question with a predictably different answer.
The Advisor's Intervention Window
The disposition effect is not treated by explaining it to investors. Kahneman and Tversky's original prospect theory work established that cognitive biases do not disappear when they are identified. What reduces their behavioural impact is a pre-established framework for decision-making that the advisor and client agreed to before the triggering event occurred.
An investor who agreed, in March, on specific criteria for reviewing their energy position -- a defined price target, a reassessment date, a portfolio weight threshold -- has a framework to evaluate the May 25 decision against. An investor who has no such framework is making the decision based entirely on the availability of the peace deal narrative and the felt reality of the gain. The second investor is the one who will likely sell.
The next 48 hours represent the advisory intervention window. The oil drop is new enough that some clients have not yet acted on it. By Thursday, some will have already called their discount broker. The difference between reaching out proactively today and receiving a call Thursday is the difference between preventing the disposition effect and explaining it after the fact.