Thanks to natural gas, energy stocks have been outperforming other sectors and the broader market.
Year to date, the S&P 500 Energy ETF (XLE) is up more than 7%, compared to the broad-based index’s rise of almost 4%.
“The energy strength is in natural gas (boosted by cold weather), pipelines, and midstream companies,” Louis Navellier, founder and chief investment officer of Navellier & Associates, told Yahoo Finance.
“The Trump Administration’s ‘drill baby drill’ is bullish for natural gas and LNG [liquified natural gas],” he said, referring to the president’s initiatives to deregulate the industry, accelerate permitting, and increase exports.
Here’s a look at individual movers within the sector:
Plains All America Pipeline (PAA), for example, is up 19% year-to-date. Baker Hughes (BKR) stock is up roughly 13% in the same period after the services giant posted strong fourth quarter results in January, citing robust gas infrastructure orders.
MPLX (MPLX), a natural gas pipeline transportation company, has produced gains of 12% since the start of the year.
Among traditional oil and gas players, ExxonMobil (XOM) and Chevron (CVX) are up 3% and 9%, respectively, year to date, while BP (BP) is also up 17%. The British giant is refocusing on oil and gas amid activist investor pressure to move away from its renewables strategies.
Investors have rotated into the Energy sector on expectations that companies will keep their promise to increase stock buybacks and hike dividends. “Big picture in the oil and gas space right now it’s all about capital discipline, it’s about returning cash to shareholders,” Tortoise senior portfolio manager and managing director Rob Thummel said.
The “discipline” comes at a time when companies are already producing near record levels. On Tuesday Devon Energy shares rose following the oil and gas explorer’s fourth quarter profit beat — amid all-time high production and a 9% quarterly dividend hike announcement for 2025.
“Oil and gas producers are producing more oil and gas, but they’re also continuing to produce oil and gas more efficiently. So they’re lowering the drilling costs. They’re lowering the completion cost. All that means is that the breakeven for oil and gas producers continues to go lower,” Thummel said.
Meanwhile, natural gas futures (NG=F) have rallied recently to two-year highs. One reason: colder-than-expected weather. An increase in LNG exports and growing electricity demand also fueled rising prices.
Despite the bullish trend, two factors could dampen gains, said Rob Haworth, senior investment strategist at U.S. Bank Asset Management.
“One is the transition into spring, which naturally cuts domestic demand for heating fuels. The second is a conclusion to the Russia/Ukraine war, which could bring Russian energy supplies back to the world market,” Haworth told Yahoo Finance.
On the oil side, prices are relatively flat for the year after a surge to start 2025, raising caution among analysts.
“I am not a believer in this rally,” said Stewart Glickman, deputy research director at CFRA Research.
Glickman pointed to the Organization of Petroleum Exporting Countries and its allies (OPEC+) recent indication that it may delay adding barrels into the market for a fourth time — signaling concerns of oversupply.
“We are not really in an energy shortage, and investors should probably taper their enthusiasm over energy firm prospects in 2025,” said Glickman.
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on X at @ines_ferre.
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