Energy stocks have outperformed the broader market to start the year, kicking off 2025 with gains as oil and natural gas prices have edged higher. 

The S&P 500 Energy Sector (XLE) is up 2.8% year-to-date, versus the broader index's (^GSPC) 0.6% rise. The sector's path is a reversal from its lagging performance over the past two years.

"Energy was the third worst performing sector in 2024," BTIG analyst Jonathan Krinsky wrote in a research note this week. He added that it was the only sector in the red for the prior two years, compared to the broader market's rise of 53%.

“While it’s far too soon to say this is more than just a rotational bounce around the turn of the year, we continue to impressed by the natural gas names, which are showing clear leadership,” he added. 

Krinsky highlights independent natural gas producers producers like Antero Resources (AR), EQT Corp (EQT), Expand Energy (EXE) which are “showing clear leadership.”

Natural gas futures (NG=F) have been on an upward trend in recent months amid colder-than-expected weather and optimism over increased exports to Europe as well as growing electricity demand.

“In 2025, the energy sector will be less about barrels of oil and more about...billions of cubic feet of natural gas demand in 2025 and beyond as the technology sector intersects with the energy sector,” Rob Thummel, senior portfolio manager at Tortoise Capital said on Thursday.

While some Wall Street analysts forecast greater oil supply putting pressure on crude prices this year, the near-term energy demand picture appears robust amid a recent rally in oil. 

On Thursday, West Texas Intermediate (CL=F) rose 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.

“Global oil demand is expected to remain strong throughout January, fueled by colder-than-normal winter conditions that are boosting heating fuel consumption, as well as an earlier onset of travel activities in China for the Lunar New Year holidays,” wrote JPMorgan’s Prateek Media and Natasha Kaneva in a note on Wednesday.

Among the oil majors, ExxonMobil (XOM) has not participated in the early 2025 sector rally. 

On Tuesday the company warned of weakness across its business and lower oil refining profits in the fourth quarter as crude prices fell. Shares of ExxonMobil are down less than 1% since the start of the year. 

Brandon Bell via Getty Images

Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on X at @ines_ferre.

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