Since President Trump entered office earlier this year, the U.S. economy, particularly the energy sector, has experienced significant volatility. Numerous policy changes and sweeping tariffs have shaken financial markets, even causing a sharp sell-off in early April. From April 2nd to April 8th, the S&P 500 dropped 699 points to its year-to-date low before recovering 998 points through June 20th. The S&P 500 Energy Index has followed a similar path, dropping 133 points before rebounding 82 points. Despite the recovery, the energy sector is slightly lagging the broader market, rising just 14 points from the start of the year compared to a 99-point gain for the S&P 500. When looking at which types of companies are driving the rebound in the energy sector, natural gas-weighted E&Ps are leading the growth, outpacing oil-weighted E&Ps, LNG exporters, midstream companies, and energy supermajors.
Gas-weighted E&Ps, such as Antero, EQT, and Coterra, have delivered strong returns, rising 19% from the beginning of the year and 22% from their April-8th low. Investors appear to see increasing upside risk for long-term Henry Hub pricing, as the current administration has signaled support for new LNG and pipeline projects. Supermajors, like Chevron and Shell, have also gained, albeit by a smaller magnitude, rising 6% YTD. While their diversified portfolios have allowed them to capture some of the upside of natural gas, their exposure to oil markets has introduced headwinds amidst geopolitical uncertainty.
Oil-weighted E&Ps, like ConocoPhillips and Devon Energy, have largely remained flat YTD and fallen behind their gas-focused counterparts. Tariffs have put downward pressure on domestic oil prices and the broader global economy, leading to a soft performance in the first quarter. However, oil-weighted E&Ps have seen a strong rebound, up 22% since April 8th, driven by recent geopolitical tensions that have provided near-term support for oil prices.
Midstream companies, such as Kinder Morgan and Energy Transfer, have also remained relatively flat to the beginning of the year, although they experienced less downside during the early April sell-off. The current administration is considered to be more favorable for midstream development, as reflected in the announcement of numerous pipeline projects since President Trump took office. So, while near-term growth has been muted, political support for new pipelines could provide upside for midstream companies.
LNG companies have shown mixed results. The group, excluding Venture Global, has remained flat to the start of the year but is up 19% from its April-4th low. The growth since April reflects positive near-term developments, like the startup of Corpus Christi Stage III and Plaquemines LNG, and growing confidence in global LNG demand, as evidenced by a positive FID for Woodside’s Louisiana LNG.
Meanwhile, Venture Global has underperformed, declining 21% from its IPO on January 24th. However, it has also had the strongest rebound of any LNG company, rising 50% from its April-7th low. The sharp move likely reflects a degree of post-IPO volatility along with significant growth targets announced by Venture Global that could be difficult to meet.
While the broader energy sector continues to trail the S&P 500, gas-weighted E&Ps are leading the pack, driven by a bullish Henry Hub outlook. Other sectors, particularly oil-weighted E&Ps and the supermajors, have shown signs of recovery but will be vulnerable to evolving geopolitical tensions and volatility in the macroeconomic environment.
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