Energy Stocks Surge Ahead with Natural Gas Boom

Thanks to a surge in natural gas prices, energy stocks have been outperforming other sectors and the broader market in 2025. As of February 20th, the S&P 500 Energy ETF (XLE) has climbed over 7%, compared to the S&P 500's gain of nearly 4%.

Cold Weather Drives Natural Gas Demand

The strength in energy has been primarily driven by natural gas, which has benefited from colder-than-expected weather. This has led to increased demand for heating, boosting the prices of natural gas futures to two-year highs.

Pipelines and Midstream Companies Thrive

Pipelines and midstream companies have also seen strong gains amid the natural gas boom. Plains All America Pipeline (PAA) is up 19% year-to-date, while MPLX (MPLX) has risen by 12%.

Strong Performance for Oil and Gas Majors

Among traditional oil and gas players, ExxonMobil (XOM) and Chevron (CVX) have gained 3% and 9%, respectively, year-to-date. BP (BP) has also experienced a resurgence, rising 17% as it refocuses on oil and gas.

Investors Seek Capital Discipline

Investors have rotated into the energy sector due to expectations that companies will continue to prioritize capital discipline and return cash to shareholders through buybacks and dividends. Devon Energy (DVN) recently reported a strong fourth quarter profit and announced a 9% dividend hike, leading to a surge in its shares.

Cautious Outlook for Oil

While natural gas has been a major driver of energy stock performance, the outlook for oil is somewhat more muted. Oil prices have been relatively flat for the year, and analysts are cautious about the potential for oversupply.

Overall, the energy sector has been a bright spot in the market in 2025, with natural gas leading the way. However, investors should remain vigilant and monitor the potential risks and opportunities in the oil and gas industry.