The energy sector moved 4.62% higher in Q1 2025 after rising 4.89% in 2024. Gasoline posted the most impressive gain as the market moves toward the 2025 driving season. Natural gas was also a double-digit percentage winner as inventories across the United States fell below the previous year’s and five-year average.
In my Q4 2024 Barchart energy report, I concluded:
Traditional energy commodities power the world. While climate change remains an issue, U.S. energy policy has shifted back to support for the oil and gas markets in early 2025. Expect lots of volatility in the energy commodities over the coming months as the world adjusts to changes. Meanwhile, geopolitical turmoil in the Middle East can cause periodic upside price action if hostilities continue or escalate.
In early Q2, prices have become volatile as tariffs are trade barriers impacting and distorting prices.
Steady crude oil in Q1- The energy commodity breaks support in early Q2
Nearby WTI and Brent crude oil futures were on either side of unchanged in Q1 2025, but prices fell in early Q2. The nearby WTI NYMEX crude oil futures contract edged only 0.33% lower over the first three months of 2025.
The monthly chart highlights that WTI NYMEX futures settled at $71.48 per barrel on March 31, 2025. Critical technical support was at the May 2023 low of $63.57. Crude oil fell below this support in early April to a $55.12 low and was under $62 per barrel in mid-April.
Nearby Brent crude oil futures moved only 0.17% higher in Q1.
The monthly ICE Brent futures chart shows that after settling Q1 at $74.77 per barrel, the energy commodity benchmark fell below technical support at the May 2023 $68.20 low to $58.39 per barrel in April.
While crude oil did not move much from the end of 2024 through March 31, 2025, the path of least resistance has turned lower in April, with many analysts calling for $50 per barrel or lower. OPEC+ has increased production, U.S. energy policy under the Trump administration favors lower prices, and the tariff-related volatility that could cause a recession continues to weigh on the world’s leading energy commodity in mid-April.
Oil product prices reflect seasonality
Oil product prices reflected upcoming seasonality in Q1, with gains in gasoline and a decline in heating oil futures.
The monthly chart illustrates the 14.01% Q1 gain in gasoline futures as the market moves toward the 2025 driving season, where gasoline demand peaks. Nearby NYMEX gasoline futures settled at $2.2907 per gallon wholesale on March 31, 2025. The price was below $2.02 per gallon in mid-April as the oil product followed crude oil prices lower.
The monthly NYMEX heating oil futures contract fell 1.60% in Q1, settling at $2.2794 per gallon wholesale. Like oil and gasoline, prices were lower, under the $2.10 level in mid-April on weakness in crude oil prices.
Gasoline crack spreads increased in Q1, while distillate refining spreads were lower over the first three months of 2025. Gasoline cracks were lower in early Q2, while distillate refining spreads were higher.
Natural gas rallies on stockpiles
NYMEX natural gas futures moved 13.38% higher in Q1 2025, settling at $4.1190 per MMBtu at the end of March.
The monthly chart shows that natural gas futures moved lower in early Q2 but remain elevated at over the $3.45 level because of increased demand for LNG, U.S. inventories, and the current rig count. The 2024/2025 withdrawal ended in March with U.S. natural stocks at 1.698 trillion cubic feet, the lowest level since 2022.
On April 4, natural gas inventories across the United States stood at 1.830 trillion cubic feet, 19.7% below last year’s level and 2.1% under the 5 year average for early April. Low stockpiles have support natural gas prices over the past months.
Natural gas is now in the shoulder season where heating and cooling demand are absent, but at around the $3.50 level, U.S. natural gas futures prices reflect low inventories. Meanwhile, the latest April 4 Baker Hughes natural gas rig report showed 96 rigs operating, 14 below the level at the same time in 2024. In April 2024, the nearby natural gas futures price was $2.14 per MMBtu at the month’s high.
Ethanol moved higher in Q1, while Rotterdam coal declined
Ethanol, biofuel blended with gasoline in the U.S., moved 2.07% higher in Q1 2025, as higher gasoline prices supported the nearby Chicago ethanol swap price.
Rotterdam coal futures moved 8.13% lower in Q1. Coal tends to be more related to heating oil and distillate prices, which also declined in Q1.
Factors to watch in Q2 and beyond
Energy prices are lower in early Q2, and the path of least resistance has turned to the downside. The factors to watch over the coming weeks and months are:
- U.S. energy policy has shifted toward increased fossil fuel production, a bearish factor for oil and oil-related commodities.
- OPEC+ has increased petroleum output, which is also bearish.
- Ongoing wars in Ukraine and the Middle East and the potential for a conflict between the U.S. and Iran are bullish factors.
- Tariff-related issues that could cause U.S. and global recessionary pressures could weigh on energy prices.
- The Chinese economy remains weak, and a trade war with the U.S. could weaken Chinese energy demand, which is bearish for oil and related energy products.
Bullish and bearish factors have tilted toward the bears in early Q2. Hostilities with Iran could cause sudden upside spikes in oil prices now that the price has dropped below $60 per barrel. However, if the current trend continues, my target for crude oil is $50 per barrel, with the potential for even lower prices.
Natural gas has declined from the Q1 closing price in April, but the price remains elevated as low inventories and increasing demand for U.S. LNG are not bearish. However, seasonality suggests that natural gas has some downside as the price is over $1.25 per MMBtu higher than at the same time in April 2024.
Expect lots of volatility in the energy commodities, and you will not be disappointed.
