Oil Prices, Energy Earnings Expected to Rise in 2017

Oil prices will continue to be a focus topic for the market next week, as major oil producers are expected to hold informal meetings in Algiers. The price of oil is a key earnings driver for companies in the S&P 500 Energy sector. For Q3 2016, the Energy sector is projected to report the largest year-over-year earnings decline (-66%) of all 11 sectors in the S&P 500. If the sector reports a decrease in earnings, it will mark the eighth consecutive quarter that the Energy sector has reported a year-over-year drop in earnings.

2017 Energy Outlook

What is the outlook for oil prices and Energy sector earnings going forward? Do analysts expect oil prices and Energy sector earnings to rise in 2017?

The answer is yes. Analysts currently project that both the price of oil (WTI) and the estimated earnings for the Energy sector will increase over the next several quarters. In terms of the price of oil (WTI), analysts believe the average price for the quarter will increase from $46.84 in Q3 2016 to $55.88 in Q3 2017. In terms of projected earnings for the S&P 500 Energy sector, analysts believe dollar-level earnings will increase from $4.3 billion in Q3 2016 to $14.0 billion in Q3 2017.

Expectations Unchanged

Interestingly, analysts have not lowered their expectations for the average price of oil for future quarters during the third quarter. In fact, the mean estimate for the average price of oil for each of the next few quarters (Q3 2016 through Q3 2017) is higher today than the mean estimate for the average price of oil for each of these quarters back on June 30.

The Energy sector is actually projected to report the highest earnings growth (307%) and be the largest contributor to earnings growth for the entire S&P 500 for CY 2017, due in part to the expectation that the average price of oil in CY 2017 is expected to be nearly $54.

Any downward revisions to the estimated (average) price of oil for 2017 could result in analysts lowering expectations for expected earnings for the sector (and the index as whole) for 2017.