Quality Oil and Gas Equities Positioned to Reward in 2025

The oil and gas sector faces a complex landscape heading into 2025, with divergent commodity trends and significant geopolitical challenges that will shape industry performance in the coming year.

Natural gas markets continue to struggle under the weight of persistent oversupply, creating challenging conditions for producers. A moratorium on new LNG export permits in the United States has exacerbated this situation, keeping prices depressed throughout 2024.

“The gas prices this year have been really under pressure. We just have so much associated gas with the oil that’s being produced that we just continue to have a glut of natural gas,” explained Mike O’Leary, a partner at Hunton Andrews Kurth.

Industry experts suggest this oversupply challenge will persist in the near term, with limited relief expected until inventory levels normalize. Ernie Miller, CEO of Verde Clean Fuels, noted that “natural gas suppliers need to work off those inventories – and see prices return to more rational levels – before they could even think of increasing production.”

In contrast, oil markets have demonstrated greater resilience despite occasional volatility. Brent crude prices maintained a relatively healthy range, ending 2024 around $70-72 per barrel. This stability can be attributed to OPEC+ production cuts and recovering demand in key economies.

U.S. oil production has remained robust, averaging 13.2 million barrels per day in 2024. This strong output level has provided a counterbalance to production cuts elsewhere, helping to maintain global supply equilibrium.

“Current oil prices are very healthy for Canadian oil and gas producers. We should see consistent ongoing drilling activity on assets with a high rate of return in 2025 if WTI prices stay above US$60,” said Brad Docherty, President & CEO of Source Rock Royalties.

The recent U.S. presidential election has introduced new variables into the energy market equation. Donald Trump’s victory has created cautious optimism among domestic producers, though most analysts expect the industry to maintain the capital discipline that was hard-learned during previous boom-bust cycles.

Matthew Cunningham, editor and economist at FocusEconomics, provided context: “Politicians’ rhetoric often divorces from reality, and in Trump’s case this is no different. He probably will succeed in boosting domestic production of oil and gas by issuing more leases for drilling on federal land and scrapping environmental regulations. Nonetheless, he is unlikely to boost output by as much as his ‘drill, baby, drill’ comment indicates.”

Industry experts warn that any significant U.S. production surge could trigger a market share defense by OPEC+. As O’Leary explained, “If the US overproduced, OPEC would say, ‘We need to defend our market share.’ So they might just open their spigots up, and that would further drive prices down.”

The broader economic outlook presents additional challenges. S&P Global Market Intelligence has significantly reduced its growth forecasts for 2025-26 across most major economies. Global real GDP growth is now projected at 2.5% for 2025 and 2.6% for 2026, representing a 0.2 percentage point reduction for both years.

China, the primary driver of oil demand growth, saw a particularly concerning 0.4 percentage point cut to its 2025 outlook. These downward revisions largely reflect anticipated drags from less favorable U.S. trade policies, tighter financial conditions, and heightened uncertainty.

A slower growth environment could potentially dampen oil demand and make markets more susceptible to short-term disruptions. However, the long-term demand thesis for oil and gas remains intact as developing economies continue to expand their energy consumption.

For investors, the oil and gas sector presents both opportunities and risks in this complex environment. Companies with disciplined capital allocation strategies, strong balance sheets, and operational flexibility appear best positioned to navigate the challenges ahead.

Several factors support continued investment in the sector. Oil prices are expected to remain above breakeven levels for many producers, supporting free cash flow generation. North American natural gas markets could potentially rebound as LNG exports increase and current oversupply conditions are gradually resolved.

Energy security concerns also continue to support investment in stable oil and gas supply, even as the world pursues a long-term energy transition. Most publicly traded energy companies have embraced capital discipline, reduced debt levels, and focused on lower-risk, profitable projects.

However, investors must also monitor significant risks, including the potential for an unexpected surge in U.S. production, a faster-than-expected slowdown in developing economy oil demand, or regulatory changes affecting pipeline projects and natural gas export logistics.

As the industry enters 2025, the oil and gas sector will continue navigating this dynamic environment marked by geopolitical uncertainties, evolving trade patterns, and shifting growth prospects. While challenges persist, particularly for natural gas producers, the sector’s fundamental role in global energy security suggests it will remain a significant component of investment portfolios during the ongoing multi-decade transition to a more diversified energy landscape.