Investing.com -- Raymond James analysts provided a cautious outlook for the energy sector in 2025.
Despite energy's underperformance over the past two years, the midstream group emerged as a bright spot in 2024, with the Alerian/AMNA index surging 37% and Raymond (NS:RYMD) James' midstream coverage group up 41%.
Geopolitical tensions, such as the ongoing conflict in Ukraine and recent Middle East confrontations, have had little impact on oil market fundamentals.
"Oil price volatility continues to be driven by rather old-fashioned supply and demand factors," the analysts note.
They highlight mixed messages from OPEC and weak demand from China as key contributors to the current market uncertainty. Additionally, the strength of the U.S. dollar, particularly around the U.S. election, is also exerting downward pressure on oil prices.
Looking ahead, Raymond James forecasts West Texas Intermediate (WTI) crude to average $70 per barrel in 2025, slightly above the futures strip, with Brent crude carrying a $5 premium.
In contrast, U.S. natural gas 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," Raymond James states. “Accommodating this incremental demand will take an all-of-the-above strategy: gas, renewables, and - in certain circumstances, and with very long lead times - nuclear as well.”
“The energy sector currently sits at only ~3% of S&P market cap, but investor sentiment still remains above pre-COVID levels. That being said, near-term uncertainty regarding the commodities (namely oil) has left investors with little conviction at the moment,” concluded the firm.