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There are several reasons to believe that 2025 could be a turning point for long-suffering oil sector investors. Even though the United States is producing more oil than ever before, eenergy stocks, overall underperformed the market in 2023 and 2024. Such low dynamics indicate the cyclical nature of supply and demand throughout the world.

The easiest way to invest in the oil sector is through exchange-traded funds (ETFs) such as Energy Select SPDR Fund NEW SIRKA: XLE. This fund includes about two dozen companies in the fields of oil, gas, consumer fuels, energy equipment and services. This is why it is often considered as a sector indicator.

Over the past five years, despite obvious changes in supply and demand, XOM has demonstrated higher overall revenue. But that dominance carries over to CVX over a longer period of time.

So what about 2025? Understanding each stock’s prospects can come down to their approach to capital expenditures (CapEx). Exxon Mobil and Chevron are taking two different approaches to capital spending in 2025, but what does that mean for the health of each stock?

The oil industry is gearing up for the coming boom, with several major players making strategic acquisitions. In 2024, Exxon Mobil completed its acquisition of Pioneer Natural Resources for $59.5 billion.

The acquisition is already bearing fruit as the company noted that more than 50% of its total production now comes from its dominant Permian, Guyana and LNG assets. This happened three years ago and is the main reason the company is generating more than $15 billion in profit and $20 billion in cash flow compared to 2019 levels. Over the next six years, Exxon expects those numbers to increase by another $20 billion and $30 billion, respectively.

As part of the company’s 2030 plan released in December, Exxon Mobil announced cash capital expenditure plans for 2025 ranging from $27 billion to $29 billion. The company says this reflects the first full year of Pioneer assets in its portfolio. The company plans to spend $28 billion to $33 billion annually between 2026 and 2030 to develop its long-term capabilities.

There couldn’t be a greater contrast between Exxon Mobil and Chevron in terms of capital investment plans. Chevron plans to cut capital spending by about $2 billion from 2024 levels. This would be between $14.5 and $15.5 billion.

Chevron announced that approximately $13 billion of this spending will go to oil and gas projects (i.e., oil and gas exploration). However, the company plans to reduce spending in the Permian Basin by up to $4.5 billion to $5.5 billion in favor of increasing its already robust free cash flow.

To be clear, $14.5 billion to $15.5 billion in capital expenditures is not an insignificant amount. But what’s remarkable is that it’s about half of Exxon Mobil’s spending plan. It’s also just part of Chevron’s efforts to cut capital spending. The company is selling some non-core assets and is recording restructuring costs of $700 million to $900 million.

This is usually a cause for concern. However, an important reason for Chevron’s decision is likely its merger with Hess Company. New York Stock Exchange: HES. The company is in arbitration with Exxon Mobil over rights to Hess’ assets in Guyana. However, the deal is likely to be approved sometime in 2025. Once approved, it will provide an optimistic outlook for Chevron’s production and free cash flow into the 2030s.

MarketBeat analysts are bullish on both stocks. The consensus price target for XOM shows 22% growth over the next 12 months. For CVX, the price target indicates an increase of 24%. Since Exxon released its 2030 Plan, analysts have been lowering their price targets.

It would seem that the key point is earnings. Despite the uncertainty surrounding the Hess merger, analysts still forecast earnings growth of 13% for Chevron and just over 1.3% for Exxon Mobil. And then you have to consider the company’s dividends. Once again, the edge should go to Chevron, with its dividend considered the gold standard, with a yield of 4.59%. And given the steps the company is taking to increase free cash flow, its 37-year streak of dividend increases is not in jeopardy.