S&P 500 Q1 Energy Sector Earnings Preview: 3rd Largest Earnings Decline of All 11 Sectors

The Energy sector will be a focus for the market this week, as Exxon Mobil and Chevron are scheduled to report earnings on April 26. Despite a slight year-over-year increase in the average price of oil in Q1 2024 relative to Q1 2023, the Energy sector is reporting the third-largest (year-over-year) earnings decline of all eleven sectors in the S&P 500 for Q1 2024 at -25.6%.

At the sub-industry level, four of the five sub-industries in the sector are reporting (or are predicted to report) a year-over-year decrease in earnings: Oil & Gas Refining & Marketing (-62%), Integrated Oil & Gas (-23%), Oil & Gas Exploration & Production (-15%), and Oil & Gas Storage & Transportation (-3%). On the other hand, the Oil & Gas Equipment & Services (16%) sub-industry is the only sub-industry in the sector projected to report year-over-year earnings growth for the quarter.

Looking ahead for the sector, analysts are predicting inconsistent earnings growth. For Q2 2024, analysts are projecting earnings growth of 14.6%. For Q3 2024 and Q4 2024, analysts are calling for earnings declines of -2.7% and -0.2%, respectively. For Q1 2025, analysts are expecting earnings growth of 17.3%.

However, it is interesting to note that analysts have increased earnings estimates (in aggregate) for companies in the Energy sector for the remaining three quarters in 2024 over the past three weeks.

FactSet Senior Energy Analysts Connor McLean and Trevor Fugita provided commentary on key trends to watch going forward related to energy.

Connor McLean highlighted key themes related to oil and gas prices. (View more articles from Connor.)

"Geopolitical tensions continue to drive volatility in crude pricing, although OPEC spare capacity should put a cap on pricing upside barring a more significant expansion of hostilities. Strong WTI pricing comes at an unwelcome time for US gas producers who are already dealing with significant oversupply in the US gas market. Constructive oil prices will only serve to drive increased associated gas production in oil-directed plays, despite ongoing concerns around gas takeaway capacity. While comparatively weak natural gas prices have incentivized some operators to reduce activity in 2024 (CHK, CRK) or shut-in production (EQT, APA), prices may need to remain lower for longer to balance the US market or risk seeing the current weakness in the cash market extend into 2025. However, given the steep contango currently present in the gas forward curve, producers may be eager to bring production back before the end of the year to coincide with the expected startup of new LNG demand.

Trevor Fugita discussed key trends related to growing power demand.

"Grid operators within the U.S. are increasing their load forecasts as they attempt to keep up with data center buildout driven by wider adoption of AI. Most notably, PJM increased their annual load growth through 2030 up to 2.4% from 2023's forecast of 0.8%. On average, this represents an additional 10.5 TWh of load each year within PJM's electrical footprint, compared to the previous forecast. Changes from 2023's forecast were primarily driven by planned data centers, with 9 GW of data centers planned or under construction in Northern New Jersey, Northern Virginia, Columbus, and Chicago. This nearly doubles PJM's current fleet of 5.1 GW of data centers and makes up approximately half of the currently planned or under construction data centers within the U.S. Overall, this buildout, combined with other sectors such as electric vehicles, are increasing load forecasts and as such, improving the long-term outlook of natural gas consumption in the power sector. However, continued development of behind-the-meter solar and utility scale renewables and batteries will continue to represent both short and long-term risk to natural gas consumption.

This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.

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