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Energy Sector Stock Performance in the Year 2024

In 2024, the S&P 500 experienced a 23.3% surge, primarily fueled by AI-related stocks. However, the energy sector displayed mixed results, with midstream companies taking the lead. As the new year, 2025, approaches, numerous uncertainties loom large.

ExxonMobil's Petroleum Refinery Situated in Baton Rouge
ExxonMobil's Petroleum Refinery Situated in Baton Rouge

Energy Sector Stock Performance in the Year 2024

The S&P 500 wrapped up 2024 with a total return of 23.3%, extending its 24.2% advance from the previous year. Despite a less vigorous end to the year, the index logged 57 record closures, buoyed by optimism surrounding artificial intelligence (AI) and the Federal Reserve's interest rate reductions. Every sector within the index registered gains for the year, yet seven underperformed the broader benchmark, with five surpassing a 20% return.

Artificial intelligence-related stocks spearheaded the market's ascent. Nvidia's staggering 171% increase and Broadcom's 108% surge showcased the sector's transformative power, propelling both corporations to new heights.

Consumer discretionary stocks outperformed in the final quarter, delivering double-digit returns, while the healthcare and materials sectors suffered double-digit declines during the same period.

Energy Sector: Gradual Gains with Wide Variability

The energy sector contributed a moderate total return of 5.6% in 2024, mirroring a year of balanced energy prices and uneven performance across its subcategories. While extraction companies and refineries grappled with difficulties, the midstream segment shone, driven by robust fundamentals and growing dividends.

All returns below refer to total returns, which incorporate dividend payouts.

Anticipated Sector Performances in 2024

Market data provider FactSet reported that midstream companies led the energy sector with a typical total return of 20.8%. Targa Resources Corp. scored the top spot, recording a sensational 110.1% return. These results underscore the segment's dependability and income-generating allure amidst a year of constricted energy prices.

In contrast, upstream companies—pure oil and gas producers—registered an average increase of merely 1.5%. Of the 47 companies categorized as “upstream” by FactSet, approximately half recorded positive returns. PrimeEnergy Resources took the lead with a 106.5% return, trailed by Comstock Resources at 105.9%. However, many upstream operators confronted obstacles from fluctuating commodity prices and investor sentiments.

The refining segment endured a challenging year, with the “Big Three” refiners—Marathon Petroleum, Valero, and Phillips 66—posting a typical decline of 6.2%. Valero led the pack with a relatively minimal decline of -3.0%, followed closely by Marathon (-4.1%) and Phillips 66 (-11.6%). The refining industry grappled with headwinds from shrinking crack spreads and slow demand growth.

Integrated supermajors fared marginally better but still ended the year in the red, with an average decrease of 3.1%. ExxonMobil emerged as the standout performer, gaining 11.3% for the year, while Chevron also inched out a 1.3% increase. These corporations benefited from diverse operations but were unable to fully escape the consequences of weak refining margins and stable oil prices.

Glancing Towards 2025

Fourth-Quarter Performance Across Various Industries in 2024

The prospects for 2025 bring both prospects and hurdles for the energy sector. A more welcoming regulatory landscape under the incoming Trump Administration could be advantageous for oil and gas operators, but industrial profits will ultimately rely on commodity prices.

OPEC+ continues to uphold production cuts, but explosive U.S. oil output has restricted upward pressure on oil prices, which restrained profits in 2024. This scenario is anticipated to persist in 2025, preventing substantial price increases and resulting in modest profitability for the sector.

Though the energy sector might exhibit limited upside in the near future, segments like midstream, with their predictable cash flows and alluring yields, remain poised to furnish value to investors. For upstream and refining companies, prioritizing cost efficiency and operational resilience will be essential in overcoming the challenges of 2025.

In essence, the energy sector's status quo of average prices and selective outperformance by subcategories is expected to carry into 2025, providing measured possibilities for investors prepared to negotiate its complexity.

The outlook for the energy sector in 2025, as suggested by the S&P 500 performance and oil prices forecasts, indicates a potential for modest profitability due to OPEC+ production cuts being offset by high U.S. oil output. (energy sector outlook 2025)

The refining sector, specifically the Big Three refiners, faced challenges in 2024 due to shrinking crack spreads and slow demand growth, and this trend might continue into 2025. (refining sector challenges)

Investors have shown interest in midstream energy companies, as seen by the significant stock surge of Nvidia and AI's stock gains in 2024. This trend could potentially extend to midstream energy, which has proven reliable with predictable cash flows and attractive yields. (nvidia stock surge, ai stock gains 2024, energy investment trends)

Targa Resources, a midstream energy company, delivered a sensational 110.1% return in 2024, highlighting the segment's potential. For upstream and refining companies to navigate 2025's challenges, prioritizing cost efficiency and operational resilience will be crucial. (targa resources 2024, midstream energy returns)

Despite the challenges in the energy sector, integrated supermajors such as ExxonMobil and Chevron managed to secure positive returns in 2024. In 2025, focus on diverse operations, cost efficiency, and operational resilience could help these companies offset weak refining margins and stable oil prices. (upstream oil performance, s&p 500 performance 2024)

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