Energy Shares Decline: A Comprehensive Roundup

Energy shares have been underperforming in recent months, with a decline in stock prices despite strong business fundamentals. This article explores the primary factors contributing to the decline and provides insights into the energy sector's trajectory in the coming years.



Market Rotation and Geopolitical Risks

In the summer of 2024, investors' demand for stocks with high growth potential, particularly those in the information technology and communication services sectors, led to a market rotation away from energy stocks. This rotation contributed to the sector's underperformance despite its strong business fundamentals (Source: S&P Dow Jones Indices). Additionally, geopolitical tensions, such as the ongoing wars in the Middle East and Ukraine, have led to elevated geopolitical risks, which can negatively impact energy shares. These risks can disrupt supply and increase uncertainty, affecting the overall performance of the energy sector (Source: S&P Global Market Intelligence).



Economic Uncertainty and Policy Evolutions

Economic instability and uncertainty, such as the potential impact of Trump's trade tariffs on global economic growth, can negatively affect energy shares. A slowdown in global economic growth can lead to decreased demand for energy, which can negatively impact energy companies' profitability and stock prices (Source: S&P Global Market Intelligence). The shift in policy landscape following elections in major global economies, such as the US, can also influence the energy sector's performance. For instance, the incoming Trump administration's plans for trade tariffs and withdrawal from the Paris Agreement could have significant implications for energy shares (Source: S&P Global Market Intelligence).

Energy Prices and Supply-Demand Dynamics

Global supply-and-demand conditions indicate that crude-oil prices are likely to remain in an elevated range in 2025, setting up a positive backdrop for profitability—and potentially stock prices—in the energy sector. Strengthening global demand for energy, increased geopolitical risk, a tight rein on supply by the Organization of Petroleum Exporting Countries (OPEC), and a wave of new investment in international and offshore production are all contributing factors to this positive outlook (Source: "4 reasons for a positive energy outlook (especially for energy producers and equipment and service companies)").

Macroeconomic Indicators and Energy Sector Trajectory

Macroeconomic indicators such as GDP growth and interest rates play a significant role in shaping the energy sector's trajectory. The IEA forecasts global electricity demand to grow by 4% in 2025, driven by Asia, with China accounting for half of the world's electricity consumption (IEA, 2025). Renewable energy capacity and generation are expected to continue growing, with more than a third of the world's electricity coming from renewables by 2025 (IEA, 2025). China is expected to dominate renewable installations, with well above 250GW in 2025 (AFRY, 2025). The US could become a leader in blue hydrogen production, with projects totaling more than 1.5 million tons per year expected to reach final investment decisions (Wood Mackenzie, 2025).



In conclusion, the energy sector's trajectory in the coming years will be influenced by various factors, including market rotation, geopolitical risks, economic uncertainty, policy evolutions, and macroeconomic indicators. Despite recent underperformance, the energy sector's fundamentals remain strong, and the outlook for crude-oil prices is positive. As the energy sector continues to evolve, investors should stay informed about these factors to make well-informed decisions.