Energy Stocks Kick Off 2025 with Gains, Outpacing Broader Market
The energy sector has started 2025 on a strong note, with stocks in this segment outperforming the broader market. As of now, the S&P 500 Energy Sector (XLE) has risen by 2.8% year to date, whereas the broader index, represented by the S&P 500 (^GSPC), has only seen a gain of 0.6%. This performance marks a significant reversal from the sector's lagging performance over the past two years.
The energy sector's resurgence can be attributed to various factors, including higher oil and natural gas prices. The upward trend in these commodity prices is driven by increased demand for heating fuels due to colder-than-expected weather conditions. Additionally, growing electricity demand and optimism over increased exports to Europe have contributed to the rally. As a result, natural gas futures (NG=F) have been on an upward trend in recent months.
Independent Natural Gas Producers Lead the Charge
BTIG analyst Jonathan Krinsky has highlighted independent natural gas producers as leading the charge in the energy sector's resurgence. In his research note this week, he mentioned that these companies are showing clear leadership, citing examples such as Antero Resources (AR), EQT Corp. (EQT), and Expand Energy (EXE). Krinsky emphasized that while it is too early to determine if this is a rotational bounce or a genuine shift in the market, the natural gas names are certainly demonstrating impressive performance.
Krinsky's observation is supported by various factors, including increased demand for natural gas due to its use as a heating fuel. The sector is also benefiting from growing electricity demand, which is driving up prices for natural gas. Furthermore, the intersection of technology and energy sectors has created new opportunities for companies that specialize in natural gas production.
Oil Majors Struggle to Keep Pace
Despite the overall strong performance of the energy sector, some oil majors are struggling to keep pace with the rally. ExxonMobil (XOM), one of the industry leaders, has not participated in the early 2025 sector rally. The company's shares have actually declined by less than 1% since the start of the year. This underperformance can be attributed to ExxonMobil's decision to lower its earnings estimates due to weaker refining profits in the fourth quarter.
In contrast, independent natural gas producers such as Antero Resources (AR), EQT Corp. (EQT), and Expand Energy (EXE) have seen significant gains since the start of the year. These companies are well-positioned to benefit from the growing demand for natural gas, which is expected to continue in 2025.
Energy Demand Remains Robust
Analysts such as JPMorgan's Prateek Kedia and Natasha Kaneva expect global oil demand to remain strong throughout January, driven by colder-than-normal winter conditions that are boosting heating fuel consumption. Additionally, the earlier onset of travel activities in China for the Lunar New Year holidays is also contributing to increased energy demand.
The near-term energy demand picture appears robust amid a recent rally in oil prices. West Texas Intermediate (CL=F) has risen about 1% to hover above $74 per barrel, while Brent (BZ=F) traded near $77. Both contracts are up roughly 10% and 8%, respectively, since early December.
Conclusion
The energy sector's strong performance at the start of 2025 is a welcome development for investors. Independent natural gas producers such as Antero Resources (AR), EQT Corp. (EQT), and Expand Energy (EXE) are leading the charge in this segment, driven by growing demand for natural gas. While oil majors such as ExxonMobil (XOM) struggle to keep pace with the rally, the overall trend suggests that energy stocks will continue to perform well in 2025.
Investors Take Note
For investors looking to capitalize on the energy sector's resurgence, it is essential to consider companies that specialize in natural gas production. These companies are well-positioned to benefit from growing demand for heating fuels and electricity. While oil majors such as ExxonMobil (XOM) may struggle to keep pace with the rally, independent natural gas producers offer a more promising outlook.
In conclusion, the energy sector's strong performance at the start of 2025 is a positive development for investors. As the market continues to evolve, it will be essential to monitor trends and developments in this segment to make informed investment decisions.