- Energy stocks have surged more than 5% so far this year, outpacing the S&P 500 index’s 1% loss.
- It’s an encouraging turnaround for the sector after lagging the market for the past two years.
- Still, Wall Street analysts remain largely downbeat on the group of stocks.
Energy stocks are off to a strong start to 2025, outpacing the S&P 500’s year-to-date performance for the first time in years.
The sector has notched a more-than-5% gain so far, propelled by growth among natural gas stocks as prices rebound from historical lows.
That increase makes it handily the best-performing sector in 2025 so far. For context, the benchmark S&P 500 is down 1% year-to-date.
The sector’s gains mark a steep turnaround for the industry. Energy stocks lost 1.3% in 2023 and narrowly eked out a 5.7% gain last year, while the S&P 500’s bull market marched on, climbing nearly 50% over the two years.
The sector's strong year has been driven by a rebound in oil and gas prices amid an onset of cold weather in the US, leading to big gains for natural gas stocks like Antero Resources and EQT.
The Biden administration's incremental sanctions on Russia's oil industry have also helped prices rally, with Brent oil surging 4% to over $80 on Friday after the latest block to the country's energy business.
Wall Street, though, remains largely downbeat on the sector despite the stunning rebound.
Analysts at Bank of America say the industry faces at least near- and medium- term headwinds as OPEC continues to delay its planned 2 million barrels per day output hike into 2025.
"With OPEC kicking the can into 2025, we remain cautious on medium term oil prices," the analysts said in a Friday note, adding that they don't see any way the production hike could happen without also bringing prices below $60 per barrel.
Analysts at JPMorgan and Citi similarly see Brent crude prices falling from current highs to around $70 per barrel this quarter.
RBC Capital Markets, meanwhile, downgraded the sector from overweight to market weight last week, citing ongoing challenges with fund flows and weak earnings revisions trends.
"On the non-US political backdrop, our analysts have the most pessimistic assessment for Energy at the global sector level," the analysts, led by head of US equity strategy research Lori Calvasina, wrote in a note.
They added that energy policy, production and sanctions rank among the top non-US policy-related issues for their analysts, above even tax policy, regulation and China's stimulus measures.
BMO Capital Markets has struck a slightly more optimistic tone on the sector, calling it an "improving, albeit uncertain, outlook" into fourth quarter earnings.
The analysts, led by Phillip Jungwirth, said the sector could benefit in the medium- to long-term from strong demand to power AI data centers.
Nuclear stocks have similarly gotten a boost from power-hungry data centers this year, with shares of stocks like Constellation Energy and Vistra Corp surging for double-digit gains.