Another bad year – and decade – for fossil fuel stocks

Oil and gas stocks continued to fall behind the broader stock market in 2024, as outlined in a new report from the Institute for Energy Economics and Financial Analysis (IEEFA). The S&P 500's fossil fuel components saw a 5.72% return in 2024, compared to the full index's 25.02%.

These results are becoming a familiar story. The fossil fuel sector has underperformed the S&P 500 in seven of the last 10 years, delivering the lowest performance and highest volatility of any S&P sector. Oil, gas, and coal have been unreliable and inconsistent contributors to long-term investment portfolios.

“The traditional fossil fuel business model faces structural risks in a decarbonizing world, and the industry has yet to demonstrate a coherent response to this reality,” said Connor Chung, IEEFA energy finance analyst and co-author of the report. “Investors should take note that the industry has spent much of the last decade dragging down long-term investment portfolios.”

In the decade before the Russian invasion of Ukraine, fossil fuel majors routinely struggled to pay for share buybacks and dividends from cash flows. When higher energy prices generated strong profits in the wake of the Covid-19 pandemic and Russian invasion of Ukraine, some investors and companies viewed it as evidence of a lasting comeback for the sector.

While oil majors struck a confident tune as 2024 began, the year’s stock market returns give further evidence that the industry has been unable to translate its crisis-era volatility into lasting results. With the transient oil and gas price spike of 2022 firmly in the rearview mirror, cash flow sagged as energy prices fell.

Fossil fuels’ pattern of financial underperformance speaks to a broader market evolution. Fossil fuels were a classic blue-chip bet for decades, promising reliable returns, steady long-term growth, and sound underlying fundamentals. Yet as the global economy has evolved, the industry has seen its once-commanding stature slip, and its performance increasingly linked to external disruption and instability. In 1980, the energy sector comprised almost 30% of the S&P 500’s total value. At the end of 2024, that figure sat at just 3.2%.

The energy transition will not always be a smooth or linear process. For short-term investors, there will undoubtedly remain money to be made in conventional energy. Yet the past year continued to demonstrate that equity markets are responding to ongoing structural shifts in the global economy—and that, as the fossil fuel industry faces existential questions about its future, investors are taking note.