The energy sector has shown an encouraging turnaround in the initial weeks of 2025 after being a laggard for the past two years. S&P 500 Energy Sector Index has gained 9.2%, outperforming the 2% gain of the S&P 500.

While most energy stocks rallied in the initial weeks, we have highlighted five that are leading the way higher and have further potential to outperform, given their Zacks Rank #1 (Strong Buy) or #2 (Buy). These are Constellation Energy Corporation CEG, Kolibri Global Energy Inc. KGEI, Berry Corporation BRY, Cheniere Energy Inc. LNG and Plains All American Pipeline, L.P. PAA. You can see the complete list of today’s Zacks #1 Rank stocks here.

The solid rebound has been driven by a surge in oil and gas prices amid colder weather, falling U.S. stockpiles and additional sanctions on Russia’s oil sector.

Let’s dig into the factors driving the space:

Cold Weather

Many U.S. states and European cities have been experiencing extreme weather in the initial weeks of 2025, raising concerns about potential disruptions to oil production and refinery operations. The cold snap has raised the demand for heating oil, thereby lifting oil and gas prices.

Declining Inventories

Crude inventories are falling. Per the latest report from the Energy Information Administration (EIA), domestic crude oil stock fell for the seventh time in a row, the longest declining streak since July 2021.

Sanctions

The fresh sanctions on Russian oil producers and tankers have raised concerns about oil supplies. The United States imposed its most aggressive and ambitious sanctions on Russia’s oil industry, targeting two large exporters — Gazprom Neft and Surgutneftegas — and 183 vessels. The move, aimed at curbing the revenues that Moscow uses to fund its war in Ukraine, will disrupt Russian crude supplies to major importers — China and India. This will push the two top buyers to source more oil from the Middle East, Africa and the Americas, thereby boosting oil prices.

Notably, Russia is the second-largest oil exporting country in the world behind Saudi Arabia and the third-largest producer of the commodity behind the United States and Saudi Arabia.

Backwardation: A Bullish View

Currently, Brent and WTI monthly spreads are trading at their widest backwardation since the third quarter of 2024. Later-dated contracts are cheaper than near-term contracts in the oil futures market in backwardation, indicating tight supply and robust demand. A market in backwardation is likely to persist, at least in the near term, acting as the biggest catalyst for the oil.

Increased Long Positions

Speculators ramped up bullish bets on Brent crude oil to a 6-month high by raising their positions in commodity futures and options in the week to Jan. 7, per the U.S. Product Futures Trading Commission (CFTC). Hedge funds also received their biggest weekly boost in lots since Oct. 8.

Stock Winners

Constellation Energy provides electric power, natural gas and energy management services to 2 million customers across the continental United States. The stock surged 41.4% in the initial weeks of 2025. The company saw a solid earnings estimate revision of 19 cents over the past seven days for this year, with an estimated growth rate of 11.1%. CEG boasts a market cap of $98.9 billion.

Constellation Energy has a Zacks Rank #1 and a Momentum Score of A.

Kolibri Global Energy is an international energy company focused on finding and exploiting energy projects in oil, gas and clean and sustainable energy. It surged 24.4% in the initial weeks of 2025. The company has an estimated earnings growth rate of 16.3% for this year and a market cap of $234.8 million.

Kolibri Global Energy has a Zacks Rank #2 and a Value Score of A.

Berry is an independent upstream energy company, which focuses on the conventional, long-lived oil reserves principally in the San Joaquin basin of California. The stock has gained 21.1% in the same time frame. With a market cap of $384.7 million, Berry saw positive earnings estimate revision of 8 cents over the past 30 days for this year.

The stock has a Zacks Rank #2 and a Value Score of A.

Cheniere Energy is primarily engaged in businesses related to liquefied natural gas (or LNG) through its two business segments: LNG terminal and LNG and natural gas marketing. It has a market cap of $56.7 billion and has risen 17.6% in the initial weeks of 2025. The company saw a solid earnings estimate revision of 51 cents over the past 30 days for this year.

Cheniere Energy has a Zacks Rank #2 and a Momentum Score of B.

Plains All American Pipeline, a master limited partnership, is involved in the transportation, storage, and marketing of crude oil, natural gas, natural gas liquids (NGL) and refined products in the United States and Canada. The stock has risen 17.4% in the same timeframe. The company has an estimated earnings growth of 18.6% for this year and a market cap of $14.1 billion.

Plains All American Pipeline has a Zacks Rank #1 and a Value Score of A.
 

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Constellation Energy Corporation (CEG) : Free Stock Analysis Report

Plains All American Pipeline, L.P. (PAA) : Free Stock Analysis Report

Cheniere Energy, Inc. (LNG) : Free Stock Analysis Report

Berry Corporation (BRY) : Free Stock Analysis Report

Kolibri Global Energy Inc. (KGEI) : Free Stock Analysis Report

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