The energy sector has started 2025 strong, outperforming the broader market thanks to rising oil and natural gas prices. This positive start marks a significant shift from the sector’s lagging performance over the past two years.
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An aerial view of the Bastrop Energy Center Power Plant in Cedar Creek, Texas, highlighting the energy sector’s resurgence.
The S&P 500 Energy Sector (XLE) has climbed 2.8% year-to-date, surpassing the broader S&P 500’s modest 0.6% gain. This performance reversal is noteworthy, considering the sector’s previous struggles. As BTIG analyst Jonathan Krinsky pointed out, energy was the third worst-performing sector in 2024 and the only sector to experience losses over the past two years, while the broader market surged by 53%.
Natural Gas Producers Show Strong Momentum
While it’s still early in the year, the energy sector’s robust start suggests a potential shift in market dynamics. Krinsky notes the impressive performance of natural gas companies, specifically highlighting independent producers like Antero Resources (AR), EQT Corp. (EQT), and Expand Energy (EXE) as demonstrating “clear leadership.” These companies have seen significant stock price appreciation in the early days of 2025.
Stock chart showcasing the recent performance of Antero Resources (AR), a leading natural gas producer.
This surge in natural gas stocks aligns with the broader trend in natural gas futures (NG=F), which have been rising in recent months. Factors contributing to this upward trajectory include colder-than-anticipated weather, increased optimism surrounding exports to Europe, and a growing global demand for electricity.
The Intersection of Energy and Technology
Rob Thummel, senior portfolio manager at Tortoise Capital, emphasizes the evolving role of natural gas in the energy landscape. He predicts that 2025 will see a shift in focus from oil barrels to billions of cubic feet of natural gas demand, driven by the convergence of the technology and energy sectors. This intersection is creating new opportunities for natural gas producers and driving demand growth.
Oil Market Dynamics and Demand Outlook
Despite some analysts predicting increased oil supply and potential downward pressure on crude prices, the near-term energy demand picture remains strong. Both West Texas Intermediate (CL=F) and Brent crude (BZ=F) have rallied since early December, with prices hovering above $74 and $77 per barrel, respectively.
JPMorgan analysts Prateek Kedia and Natasha Kaneva attribute the robust oil demand to colder winter conditions, which are increasing heating fuel consumption, and the earlier-than-usual travel activity in China for the Lunar New Year holidays. This strong demand provides a supportive backdrop for oil prices despite concerns about potential oversupply.
ExxonMobil Lags Behind Sector Rally
While the energy sector as a whole has enjoyed a strong start to 2025, industry giant ExxonMobil (XOM) has not participated in the rally. The company recently lowered its earnings estimates due to weaker refining profits in the fourth quarter, attributed to falling crude prices. As a result, ExxonMobil’s stock price has remained relatively flat since the beginning of the year.
Conclusion: A Promising Start for the Energy Sector
The energy sector’s strong performance in early 2025 signals a potential turning point after two years of underperformance. Driven by rising natural gas prices, increasing global energy demand, and the growing intersection of energy and technology, the sector is poised for continued growth. While challenges remain, including potential oil oversupply, the current market dynamics suggest a positive outlook for the energy sector in the coming year.
