Investing.com — Analysts at Raymond James gave a cautious outlook for the energy sector in 2025.
Despite underperforming in energy over the past two years, the midstream group emerged as a bright spot in 2024, with the Alerian/AMNA index rising 37% and Raymond (NS:) James’ midstream coverage group rose 41%.
Geopolitical tensions, such as the ongoing conflict in Ukraine and recent confrontations in the Middle East, have had little impact on oil market fundamentals.
“Oil price volatility is still determined by rather old-fashioned supply and demand factors,” the analysts note.
They highlight mixed messages from OPEC and weak demand from China as major factors contributing to the current market uncertainty. Furthermore, the strength of the US dollar, especially around the US elections, also puts downward pressure on oil prices.
Looking ahead, Raymond James predicts that West Texas Intermediate (WTI) crude will average $70 per barrel in 2025, slightly above the futures strip, with a $5 premium.
In contrast, US prices are expected to average $4 per Mcf, significantly higher than current futures prices.
A notable theme for 2025 is the continued impact of artificial intelligence (AI) on the energy sector.
“AI remains the number one story in the energy sector,” says Raymond James. “To meet this increasing demand, a comprehensive strategy is needed: gas, renewable energy sources and – in certain circumstances, and with very long lead times – also nuclear energy.”
“The energy sector is currently only ~3% of S&P market cap, but investor sentiment still remains above pre-COVID levels. That said, near-term uncertainty surrounding the commodity (namely oil) has provided investors with little conviction at this time,” the company concluded.
