When Brent crude hit $116 per barrel in early May, it was the highest price Canadian retail investors had seen in years. For eight weeks leading up to that point, energy stocks had been on a run that was visible on every brokerage statement, every financial news headline, and every quarter-point move on the TSX energy sub-index. Clients noticed. They updated their mental model of what energy was worth. And that update is now the problem.
By May 31, Brent had fallen to approximately $93, down roughly 20% from its peak on reports of a tentative U.S.-Iran ceasefire extension and a possible reopening of the Strait of Hormuz. Canadian energy names followed the crude price lower. The numbers are still extraordinary in absolute terms: Brent is still approximately 44% above where it traded a year ago. But the direction of travel matters more to most investors than the level, and the direction is down.
Why $93 Feels Like a Loss When It Isn't One
Kahneman and Tversky's 1979 Prospect Theory paper established the mechanism that explains this precisely. Outcomes are not evaluated in absolute terms. They are evaluated relative to a reference point, typically the most recent salient experience. The value function is asymmetric: losses from the reference point hurt roughly twice as much as equivalent gains feel good. A move from $93 to $116 is experienced as a gain. A move from $116 back to $93 is experienced as a loss of equal magnitude, but with twice the psychological weight.
For clients who watched energy positions appreciate through March and April, the reference point is not $65 oil from a year ago. It is the peak. Against that benchmark, $93 is a loss, full stop, and the emotional response is calibrated accordingly. The fact that $93 oil is still historically elevated, still supportive of exceptional cash flow for Canadian producers, and still well above the break-even for the major integrated names does not factor into the emotional calculus. Losses loom larger than gains. The reference point set the frame.
Myopic Loss Aversion Makes It Worse
Benartzi and Thaler's 1995 work on myopic loss aversion extends the Kahneman-Tversky framework in a way that is directly relevant to the current moment. Their central finding was that investors who evaluate portfolios frequently, even when their actual investment horizons are long, behave as if their horizon is about one year. The frequent observation of short-term losses produces a disproportionate aversion to equities broadly, or to the specific names that are declining.
The oil shock of the past three months has been impossible to ignore. It was in every headline. Energy positions moved visibly on every statement review. Clients who might otherwise have a five-year time horizon for their energy allocation have been checking prices as if they are trading it. That elevated evaluation frequency, combined with loss aversion from a recently established high reference point, produces exactly the behaviour now surfacing in advisor inboxes: calls about whether to sell energy, whether the war trade is over, whether the portfolio should be repositioned before the ceasefire takes hold permanently.
The chart below shows Brent crude's trajectory from January through May 2026, with the reference point dynamics annotated. The price level that most investors internalized as 'normal' during the peak is visible alongside the current level, illustrating the gap between market reality and the felt experience of the decline.
Brent crude's trajectory from pre-conflict levels through the April 7 ceasefire shock, the May 4 price peak, and the subsequent decline on ceasefire extension reports. The dashed red reference line marks the investor anchor point: the price that dominated financial coverage and client statements at the peak. The current price, while still 44% above year-ago levels, sits approximately $23 below that anchor.
The Ceasefire Uncertainty Amplifies the Problem
What makes this particular moment especially difficult for clients is that the narrative is genuinely unresolved. As of June 1, the ceasefire extension has been agreed in principle by both U.S. and Iranian negotiators, but it has not been formally approved by President Trump and Iranian state media has described it as not yet finalized. Analysts note that even if a formal deal is reached, physical reopening of the Strait will take weeks to months: minefields require clearing, damaged infrastructure requires repair, and shut-in production fields may take time to restart.
This means clients are evaluating an oil-price decline that may or may not be permanent against a reference point set at the peak of a conflict that may or may not be ending. The uncertainty is not a risk that resolves itself quickly. It is a multi-week environment in which every headline about the ceasefire will reset the narrative and reprice the asset. The research on availability heuristic, particularly Kahneman and Tversky's 1974 work in Science, predicts that the most recent and most emotionally salient event will dominate the judgment. In this case, that is the peak and the subsequent decline, not the longer-horizon thesis.
What the Anchoring Research Predicts About the Next Move
Tversky and Kahneman's anchoring research is unambiguous on what happens next. Clients who have set $116 as their reference point will not quickly recalibrate to $93. The anchor persists. If oil recovers to $100, they will experience $100 as partial relief from a loss, not as a gain. If oil falls to $85, they will experience that as a deepening loss, not as a correction to fair value. Either way, the emotional evaluation is dominated by the distance from the anchor, not the absolute level.
For clients whose Canadian energy allocation appreciated through the shock and has since partially declined, the practical risk is the disposition effect, documented by Shefrin and Statman in 1985: the tendency to sell assets that have declined from a recent peak in order to avoid further psychological pain, while holding assets that have appreciated to avoid locking in a gain. The selling impulse in energy is not irrational in the colloquial sense. It is exactly the behaviour predicted by the research when a salient reference point has been established and then breached.