Citi foresees the energy sector outperforming in the near term as geopolitical risk is likely to keep oil prices higher for longer, CNBC reports.

Even if the war in the Middle East doesn’t escalate further, Citi analysts expect oil prices to remain high through 2024.

The energy sector is up 13% so far this year, outperforming the S&P 500 index, and only trailing communications services, up 9%.

The best-performing energy stock is refiner Marathon Petroleum, up 33% year to date, followed by Exxon Mobil, up 20%, and Chevron, up 8%.

“Our commodity team see higher-for-longer oil, given the geopolitical risk, even as a severe escalation seems unlikely,” Dirk Willer, head of City’s global asset allocation team, wrote in a client note Friday. “In addition, recent oil price rises will only be incorporated with a lag.”

“Possible escalation from Israel could take the form of a military operation in Rafah later this month,” Citi told clients. “This risk keeps us from engaging in an underweight for now.

“In the short term, the global reflation theme and tensions in the Middle East are keeping prices supported,” the Citi analysts said.

U.S. crude oil is up 14% this year, and global benchmark Brent is up 12%, as the balance between demand and supply has tightened; the world economies have defied central bank interest rate increases, continuing to grow, while OPEC+ has slashed the production of crude oil.

Looking out to 2025, the Citi team expects Russia and Saudi Arabia will shift their spare capacity back onto the energy market, keeping oil demand growth under 1 million barrels a day.