Energy stocks have had a varied start to 2025, with natural gas companies emerging as the clear front-runners. The Energy Select Sector SPDR ETF (XLE) is up 4% so far this year, outperforming the broader S&P 500’s 1.7% rise. However, the gains have been uneven across the sector. Natural gas producers and refining companies have driven most of the momentum, while oil services and exploration firms have struggled.
Among the top performers in the XLE are natural gas giants EQT and Expol Energy, up 26% and 19% respectively through Monday’s close. Refiners like Marathon Petroleum and Valero Energy also made strong showings, gaining 20% and 12%. In contrast, several notable oil companies, Halliburton, APA, Occidental Petroleum, Diamondback Energy, and Schlumberger, have lagged behind, each losing between 6% and 16% year-to-date.
Analysts at Goldman Sachs remain optimistic about natural gas and refining stocks. They highlight EQT’s cost-efficient operations and strategic position in serving data center energy demands. Valero was also praised for its high-quality Gulf Coast refining assets.
Oil Stocks Poised for a Comeback
Despite their slow start in 2025, oil stocks may be ready to turn the corner. Goldman Sachs analysts suggest that some underperformers, especially Diamondback Energy stocks and Halliburton, could be on the verge of a rebound. These companies currently trade at attractive valuations, roughly 10 times projected earnings, offering a potential value play for investors willing to navigate short-term oil price volatility.
Meanwhile, larger oil producers like Exxon Mobil and ConocoPhillips are still considered solid bets. According to Brian Mulberry of Zacks Investment Management, these companies remain attractive as long as crude oil stays above $60 per barrel. With West Texas Intermediate (WTI) crude hovering around $75, supported by geopolitical tensions such as the Israel-Iran conflict, analysts see room for prices to climb further, especially as recession fears ease and demand remains stable.
Mulberry emphasized that demand hasn’t fallen off, indicating that oil could remain a key part of the energy investment picture, even as natural gas leads the early-year rally.
Valuations and Technicals Show Opportunity
Energy stocks overall appear attractively priced. The sector trades at about 16 times forward earnings, compared to 20 for the broader S&P 500, suggesting room for upside. Nicholas Colas of DataTrek Research called the valuation “statistically cheap,” while Bespoke Investment Group analysts noted encouraging technical indicators. They reported that the energy sector currently has the highest percentage of stocks trading above their 50-day moving averages, signaling growing investor interest.
That interest is starting to translate into market activity. Bank of America Securities reported the largest inflows into energy ETFs since October 2023 last week, attributing the surge to heightened geopolitical concerns.
With continued instability in the Middle East and a favorable valuation backdrop, investor attention may soon shift from natural gas leaders to undervalued oil service and exploration firms. As Jill Carey Hall of Bank of America Securities put it, many investors are starting to recognize the untapped potential in this year’s oil and gas sector underdogs.
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