The U.S. stock market finished strongly in the green in 2025, with the broad market benchmark, S&P 500, returning 16.4%, marking its third straight year of double-digit gains. Interestingly, all 11 market sectors finished in the green, underscoring the broad market momentum. Not surprisingly, the tech sector topped the performance tables once again with a 24.6% gain thanks to the ongoing AI data center buildout and semiconductor upcycle. Industrials delivered an impressive 19.3% return, thanks to infrastructure investment, reshoring activity and healthy order backlogs, while Utilities surprised to the upside with a 16.0% return. Unfortunately, the Energy sector was a laggard again, notching a respectable but below-market return of 7.9%, ahead of only Consumer Staples, Consumer Discretionary and Real Estate, in large part due to a big pullback in oil prices in the second half of 2025.
Interestingly, refiners emerged as the top industry in the energy sector, with the “Big Three” refiners—Valero Energy (NYSE: VLO), Marathon Petroleum (NYSE: MPC) and Phillips 66 (NYSE: PSX)—posting an average return of 24.6% led by 37.0% gain by VLO, followed by 19.2% by MPC and 17.5% by PSX. Oil refining stocks outperformed in 2025 due to strong refining margins (crack spreads) from tight global refining capacity, lagging new build-outs, steady demand for distillates (diesel, jet fuel), improved refinery operations, and strategic shifts towards higher-value products. Key catalysts included limited supply capacity, better asset utilization, and new growth avenues in renewables.
Integrated oil companies also made a strong comeback after a lackluster 2024, led by TotalEnergies (NYSE: TTE), which finished with a 28.3% return; BP (NYSE: BP) gained 24.5% while Shell (NYSE: SHEL) added 22.2%. U.S. supermajors also posted solid gains, led by Exxon Mobil (NYSE: XOM), which finished with 16.0%, while Chevron (NYSE: CVX) returned 10.1% thanks to their diversified operations helping cushion against weaker oil prices.
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We are still in the early innings of the new year, but oil and gas stocks appear to be turning the tables. The S&P 500 Energy Sector is up 7.5% in the year-to-date, easily outpacing the 1.2% gain by the S&P 500. The outperformance comes as a surprise given that the sector is facing pressure from ample supply, with forecasts predicting lower, range-bound prices (Brent $50-$60/barrel). It’s quite likely that investors are focusing more on company resilience, strong dividends and disciplined capital allocation, while natural gas sees more divergence but global LNG growth. Once again, refining stocks have been quick off the blocks, with VLO up 14.6% in the first two weeks of the year; MPC has gained 11.4% while PSX has returned 9.6%. Crack spreads are generally expected to remain strong or elevated, particularly for diesel, supported by high refinery utilization rates and ongoing supply constraints, though some forecasts suggest a slight decrease from 2025 levels due to a crude oil supply surplus. To wit, the U.S. Energy Information Administration (EIA) forecasts that both gasoline and diesel crack spreads will be higher on average in 2026 compared to 2025 levels. Rystad Energy also expects “very high” diesel crack spreads in Europe and the U.S. to persist through most of 2026.
This surplus could put downward pressure on crude oil prices, which might slightly moderate crack spreads compared to peaks, but refining margins are expected to remain above historical averages.
The U.S. West Coast faces additional price pressure due to planned refinery closures (e.g., Valero’s Benicia refinery in April 2026 and Phillips 66’s Los Angeles-area refinery), which could lead to increased gasoline prices and potentially wider crack spreads locally as the region relies more on imports. Europe, on the other hand, faces acute diesel supply risks, suggesting continued strong margins for U.S. Gulf Coast refiners exporting to the region. Overall, the trend for crack spreads in 2026 is likely to be driven by structural imbalances in refining capacity versus product demand, suggesting that while crude prices may ease due to an overall supply glut, refining profits are expected to remain robust.
Meanwhile, integrated oil stocks are expected to be mixed in the current year, with potential for resilience and stable returns, but could underperform relative to the broader market. The sector will likely be driven less by oil prices alone and more by individual company factors like operational efficiency, capital discipline, and strategic diversification into renewables and midstream operation. Integrated companies, which have both upstream and downstream (refining and marketing) operations, are better positioned to weather commodity price cycles than pure-play producers. Strong refining margins can help offset weaker upstream cash flows.
Alex Kimani for Oilprice.com
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