Investing.com — Raymond James analysts provide a cautious outlook for the energy sector in 2025.

Despite the underperformance of energy in the past two years, the midstream group emerged as a bright spot in 2024, with the Alerian/AMNA index surging 37% and Raymond (NS:) James’ midstream group coverage is up 41%.

Geopolitical tensions, such as the ongoing conflict in Ukraine and recent confrontations in the Middle East, have little impact on oil market fundamentals.

“Oil price volatility continues to be driven by more primitive supply and demand factors,” the analysts said.

They highlighted mixed messages from OPEC and weak demand from China as factors contributing to the current market uncertainty. In addition, the strength of the US dollar, especially around the US election, also exerted downward pressure on oil prices.

Looking ahead, Raymond James forecasts West Texas Intermediate (WTI) crude oil to average $70 per barrel in 2025, slightly above the futures strip, with a $5 premium.

In contrast, US prices are expected to average $4 per Mcf, higher than current futures prices.

A prominent theme for 2025 is the continued impact of artificial intelligence (AI) on the energy sector.

“AI remains the number-one story in the energy sector,” said Raymond James. “Accommodating this incremental demand will require an all-of-the-above strategy: gas, renewables, and – in some circumstances, and with very long lead times – nuclear as well.”

“The energy sector currently sits at only ~3% of the S&P market cap, but investor sentiment remains above pre-COVID levels. As such, the near-term uncertainty around commodities (ie oil) leaves investors with little conviction at the moment,” the company concluded.