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Energy Sector

Sector Highlights

In 2024, the energy sector experienced a modest total return of 5.6%, significantly underperforming the S&P 500’s 23.3% gain for the same period. This overall performance, however, masked considerable variability across different subsectors within the energy market.

Midstream Segment

Midstream companies, responsible for the transportation and storage of energy commodities, emerged as the standout performers in 2024. This segment achieved an average total return of 20.8%, driven by stable cash flows and robust dividend growth. Targa Resources Corp. exemplified this success with an exceptional return of 110.1%, highlighting the segment’s resilience and attractiveness to income-focused investors.​

Upstream Segment

Conversely, upstream companies, which focus on exploration and production, faced challenges amid fluctuating commodity prices and investor sentiment. This segment recorded an average gain of only 1.5%. While some companies like PrimeEnergy Resources and Comstock Resources posted impressive returns of 106.5% and 105.9% respectively, over half of the 47 upstream companies analyzed struggled to achieve positive returns.​

Refining Segment

The refining segment encountered a particularly difficult year, with major refiners such as Marathon Petroleum, Valero, and Phillips 66 averaging a decline of 6.2%. Valero experienced a relatively modest decline of 3.0%, while Marathon and Phillips 66 saw declines of 4.1% and 11.6% respectively. These declines were primarily due to narrowing crack spreads and subdued demand growth, which adversely affected refining margins.

Integrated Supermajors

Integrated supermajors, which operate across multiple segments of the energy industry, also faced a challenging environment, ending the year with an average decline of 3.1%. ExxonMobil stood out with a gain of 11.3%, while Chevron achieved a modest increase of 1.3%. Despite their diversified operations, these companies were not immune to the broader sectoral challenges, particularly the weaker refining margins and stable oil prices.

Market Dynamics

The energy sector’s underperformance relative to the broader market can be attributed to several factors, including moderate energy prices, fluctuating commodity markets, and geopolitical uncertainties. While the midstream segment benefited from its stability and income-generating capabilities, upstream and refining segments faced headwinds that limited their growth

Outlook for 2025

Looking ahead, the energy sector faces a mixed outlook. A potentially more favorable regulatory environment may offer some support to oil and gas operators. However, the persistence of OPEC+ production cuts alongside record U.S. oil output is likely to keep commodity prices in check, suggesting that profitability may remain constrained. Investors may find selective opportunities, particularly in the midstream segment, which continues to demonstrate stability and attractive yields. For upstream and refining companies, focusing on cost efficiency and operational resilience will be crucial in navigating the challenges of the coming year.

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