Will 2025 Be the Year the Energy Sector Finally Breaks Out?

Key Points

• The energy sector has surged over 9% YTD, significantly outperforming the S&P 500.
• Stable oil prices, LNG projects, and defensive investor positioning have fueled the outperformance.
• The energy sector ETF (XLE) has been consolidating between $80 and $100 since mid-2022 and is now nearing key resistance at $100.

The energy sector has significantly outperformed the broader market year-to-date in 2025. While the S&P 500 has struggled, with the SPY ETF down nearly 9% from its 52-week high and 5% YTD, the Energy Select Sector SPDR Fund NYSEARCA: XLE has surged over 9% as of the first quarter’s close. This strength has been fueled by stable oil and gas prices, potential peaks in U.S. oil production, and new LNG projects, all contributing to a resilient sector.

Additionally, energy stocks remain attractive as a defensive play, offering solid dividends from industry giants like ExxonMobil and Chevron.

Beyond fundamental factors, U.S. energy policy continues to support local production, while geopolitical tensions have tightened global supply, benefiting domestic producers. Investors navigating a late-cycle market and shifting consumer spending trends have found energy’s large-cap producers and midstream companies more appealing than the high-growth sectors of the S&P 500.

Energy Sector Approaches Multi-Year Resistance

Technically, the energy sector is nearing a pivotal moment. Since mid-2022, the XLE ETF has been consolidating between $80 and $100, with the latter acting as a key resistance level. After briefly testing support in early March, XLE has rebounded strongly, closing at $93.45 on Monday.

While an imminent breakout is uncertain, the sector’s YTD outperformance suggests that 2025 could be the year XLE finally pushes past its multi-year resistance. Investors should closely monitor price action near the high-$90s range. If XLE successfully breaks above $100, potentially during Q2, it could mark the start of a significant multi-year breakout, shifting energy from a lagging sector in previous years to a market leader.

Go-To Names If the Energy Sector Breaks Out

XLE: The Top Energy Sector ETF for Broad Exposure

For broad exposure, XLE remains the most straightforward play. The ETF tracks the Energy Select Sector Index, which includes major oil, gas, and energy equipment companies. With a diversified portfolio, a 3.06% dividend yield, and a low expense ratio of 0.09%, XLE offers a balanced way to capitalize on the sector’s strength. Based on analyst coverage of its key holdings, the ETF holds a Moderate Buy rating.

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Exxon Mobil: A Sector Giant

Exxon Mobil NYSE: XOM mirrors the sector’s broader setup for investors seeking an individual stock play. XOM, the top-weighted stock in XLE, has been consolidating near its highs for multiple years, with $122 acting as significant resistance and $100 as strong support. YTD, XOM has outperformed, climbing 10.56% while trading just 6% below its 52-week high. From a technical standpoint, Exxon’s bullish chart signals that if the sector breaks out, XOM could deliver even more substantial gains given its leadership position, historical correlation, and outperformance of the ETF’s movement.

XOM shares in the positive sentiment surrounding the overall sector. Based on 22 analyst ratings, XOM has a Moderate Buy rating and price target forecasting over 8% in potential upside. The stock also has an impressive 3.3% dividend yield and an attractive forward P/E of 13.57.

The Bottom Line

With the energy sector demonstrating significant YTD strength and approaching key technical resistance, 2025 could be the year it breaks out of its multi-year consolidation. Investors should closely watch XLE’s price action near the $100 level. A confirmed breakout could set the stage for continued outperformance, making energy one of the most attractive sectors of the year.