Editor’s note: This story has been updated to correct language around a report on U.S. sanctions on Russia to state that President-elect Donald Trump’s economic team is considering either easing or increasing sanctions.

The U.S. energy sector kicked off 2025 with a strong rally, outperforming all other sectors as crude prices soared and investors bet on a deregulatory shift under the incoming Donald Trump administration.

What Happened: The Energy Select Sector SPDR Fund ( XLE ) has surged more than 8% in the first half of January. That’s well ahead of any other sector. Industrials, the next-best performer, are up just 3.7% over the same period.

Rising oil prices fuel the rally; crude topped $80 per barrel this week. Meanwhile, fresh U.S. sanctions on Russia and a larger-than-expected draw in domestic stockpiles stoke supply concerns.

The Biden administration's latest sanctions, imposed on Jan. 10, target Russian oil producers Gazprom Neft and Surgutneftegaz, as well as more than 160 tankers, tightening restrictions on Moscow's energy revenues. The move adds to existing supply constraints, and some analysts see more pressure ahead.

If Russian flows tighten further and sanctions on Iran and Venezuela intensify, oil prices could climb toward $90 per barrel. That’s according to Goldman Sachs commodity strategist Daan Struyven.

Adding to the uncertainty, Bloomberg reported Thursday that Trump's economic team is weighing two options: easing or increasing sanctions as leverage with Russia, aiming to push Moscow toward negotiations over the war in Ukraine.

Trump has hinted at a potential meeting with Russian President Vladimir Putin, fueling speculation over how U.S. policy—and global energy markets—could change in the months ahead.

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Why It Matters: Within the oil majors, Chevron Corp ( CVX ). has been the standout performer, gaining nearly 10% since the start of the year, while Exxon Mobil Corp ( XOM ). has added 3%.

In a note shared Thursday, Goldman Sachs analyst Neil Mehta expects a "constructive setup" for Chevron ( CVX ) heading into 2025. He cites an expected production and free cash flow boost from its Tengiz operations, strong shareholder returns—projected at around 10% annually through dividends and buybacks—and improving operational execution.

Investors are also watching for updates on Chevron's ( CVX ) acquisition of Hess Corp ( HES ). , particularly the ongoing arbitration process.

Goldman Sachs doesn't take a stance on the outcome. Yet, Chevron ( CVX ) management projects a resolution by the third quarter of 2025. Speaking at the Energy, CleanTech & Utilities Conference last week, company executives expressed confidence in Hess' position and hinted at progress on regulatory approvals and integration planning.

Chevron ( CVX ) shares have been on a tear. They hit a one-month high this week and could extend their winning streak to seven straight sessions on Thursday.

The company is set to report fourth-quarter earnings on Jan. 31, with Wall Street expecting earnings per share of $2.22 on revenue of $47.28 billion, according to Benzinga Pro data. A year ago, Chevron ( CVX ) posted EPS of $3.45 on revenue of $50.67 billion.

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