Barclays is projecting a pronounced rebound in earnings across the European energy sector, driven by a combination of rising commodity prices and stronger refining margins.
In a note issued Tuesday, analyst Lydia Rainforth said the sector is "set to deliver a q/q increase in earnings" as supply worries linked to the Middle East conflict push commodity prices upward. Barclays' revised forecasts are now "30% ahead of consensus for FY26," the firm wrote.
Rainforth expects a meaningful recovery in first-quarter net income after Brent crude averaged $77 per barrel - a 22% increase quarter-over-quarter. Based on that price performance, Barclays projects that sector earnings will rise "by more than 40% q/q." The firm highlighted several factors supporting the uplift: firmer refining margins, higher prices for crude and natural gas, and the possibility of improved trading results as volatility rises.
The analyst noted that company-level exposure differs by region and business mix. Majors such as BP and TotalEnergies are described as having concentration in upstream and LNG activities, while Shell’s earnings are tied largely to Qatar’s gas-to-liquids (GTL) operations. OMV is identified as more heavily weighted toward refining and chemicals. Barclays stated that higher commodity prices should "largely offset any reduction in output."
Rainforth summarized the recent moves across key inputs: crude rose 22% quarter-over-quarter, European gas increased 32%, and northwest Europe (NWE) refining margins gained 9% - a backdrop she characterized as "All cylinders [are] firing together."
On returns, Barclays expects return on capital to reach about 12%, a level the firm associates with periods when Brent traded near $85 per barrel. At that price point, Barclays estimates FY26 earnings per share would increase by roughly 50% versus FY25.
Valuations in the sector also appear attractive to Barclays. The firm reports a median 2026 free-cash-flow yield of 8.6% for the sector, which it notes is above the 20-year average.
Sector implications - The forecasted earnings recovery is relevant to upstream oil and gas producers, refiners, LNG operators and companies with significant trading businesses, as these areas stand to benefit from higher commodity prices and wider refining margins.
Data and assumptions - Barclays’ projections incorporate observed price moves for Brent, European gas and NWE refining margins and factor in potential trading outcomes amid elevated volatility. The firm’s FY26 forecasts are positioned materially above consensus.