The energy sector has outpaced other sectors and the broader market in early 2025, driven by the strength of natural gas. The S&P 500 Energy ETF (XLE) has climbed over 7% year-to-date, surpassing the S&P 500’s gain of nearly 4%.
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This surge in energy stocks is primarily attributed to natural gas, boosted by cold weather, as well as strong performance in pipeline and midstream companies. Louis Navellier, founder and chief investment officer of Navellier & Associates, highlighted the impact of favorable policies from the previous administration on natural gas and liquefied natural gas (LNG). Deregulation, expedited permitting, and increased exports have contributed to this positive momentum.
Individual Energy Stock Performance
Several individual companies within the energy sector have demonstrated significant gains. Plains All America Pipeline (PAA) has seen a 19% increase year-to-date. Baker Hughes (BKR) has risen approximately 13% following strong fourth-quarter results driven by robust gas infrastructure orders. MPLX (MPLX), a natural gas pipeline transportation company, has also enjoyed a 12% gain since the start of the year.
Traditional oil and gas giants have also benefited from the sector’s upswing. ExxonMobil (XOM) and Chevron (CVX) are up 3% and 9%, respectively. BP (BP) has experienced a notable 17% increase, potentially influenced by a renewed focus on oil and gas amid investor pressure.
Capital Discipline and Shareholder Returns
The energy sector’s current performance is characterized by capital discipline and a focus on returning cash to shareholders through increased stock buybacks and dividend hikes. Rob Thummel, senior portfolio manager and managing director at Tortoise, emphasized this trend, noting that companies are prioritizing shareholder value in a period of near-record production levels. Devon Energy’s recent profit beat, record production, and 9% dividend hike announcement exemplify this approach.
Natural Gas Price Drivers and Potential Headwinds
Natural gas futures (NG=F) have reached two-year highs, driven by colder-than-expected weather, increased LNG exports, and growing electricity demand. However, Rob Haworth, senior investment strategist at U.S. Bank Asset Management, cautioned that the transition to spring and a potential resolution to the Russia-Ukraine conflict could moderate these gains.
While oil prices have remained relatively stable after an initial surge in 2025, some analysts express caution. Stewart Glickman, deputy research director at CFRA Research, cited OPEC+’s potential delay in adding barrels to the market as a sign of oversupply concerns. He suggested that investors should temper their enthusiasm for energy firm prospects in 2025.
Conclusion
The energy sector’s robust performance in early 2025 is largely attributed to the strength of natural gas, driven by various factors including favorable weather conditions, increased demand, and strategic capital allocation by companies. However, potential headwinds such as seasonal changes and geopolitical developments warrant careful consideration. While the sector shows promise, investors should remain vigilant and evaluate potential risks before making investment decisions.
