S&P 500 Q4 Energy Sector Earnings Preview: 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 results on February 2. Overall, this sector is reporting the largest (year-over-year) earnings decline of all eleven sectors for Q4 2023 at -31.4%.

At the sub-industry level, three of the five sub-industries in the sector are reporting a year-over-year decrease in earnings: Oil & Gas Refining & Marketing (-63%), Integrated Oil & Gas (-34%), and Oil & Gas Exploration & Production (-20%). On the other hand, two sub-industries are reporting year-over-year earnings growth: Oil & Gas Equipment & Services (23%) and Oil & Gas Storage & Transportation (4%).

Lower year-over-year oil prices are contributing to the year-over-year decrease in earnings for this sector. The average price of oil (WTI) in Q4 2023 ($78.53) was 5% below the average price for oil in Q4 2022 ($82.64).

Looking ahead for the sector, analysts are predicting inconsistent earnings growth for the sector. For Q1 2024 and Q3 2024, analysts are projecting earnings declines of -24.0% and -7.4%, respectively. However, analysts are calling for earnings growth of 7.4% and 5.3% for Q2 2024 and Q4 2024, respectively.

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

Below, Connor highlights key themes related to oil and gas prices. (You can also read more energy commentary from Connor.) 

“The US energy market enters 2024 on unstable footing after commodity pricing for both oil and gas fell significantly in 2023. The focus of public E&Ps on moderate production growth and shareholder returns is likely to continue in a low commodity price environment, especially if the cost of oilfield services continues to feel inflationary pressure. Despite recent cold weather, the outlook for US gas pricing remains bearish with limited upside for Henry Hub pricing until new structural LNG demand materializes at year-end. Oil pricing is projected to be similarly weak with OPEC production cuts struggling to offset sluggish global demand growth. Geopolitical tensions present upside risk for oil pricing in the short term, although companies with large international production exposure could face additional difficulties if conflicts in the Middle East and South America expand.”

And here, Eric Hinojosa discusses key trends related to renewable energy. (You can also read more energy commentary from Eric.)

“U.S. offshore wind is showing momentum, with the South Fork and Vineyard Wind 1 projects successfully delivering power to their respective grids. Yet, the industry continues to struggle with implementation as offshore wind developers seek to renegotiate contracts in light of rising inflation. More recently, Equinor and BP terminated their offtake agreement and EPC contracts for their Empire Wind 2 project off the coast of Long Island, NY, though stating that the project will continue. The industry anticipates signing new offtake agreements with states; the terms of these agreements will play a crucial role in determining project viability. Despite these setbacks, there is a strong pipeline of development onshore with 18 GW of solar, 7 GW of battery storage, and 3 GW of wind under construction and projected to be operational before the summer of 2024. However, 3.5 GW of coal unit retirements and reduced utilizations of the fuel will offset downside potential of natural gas consumption in the power sector.”

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