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Investing.com - Higher natural gas prices are tipped to support European energy sector earnings in the first quarter, according to analysts at Barclays (LON:BARC).
In a note to clients on Wednesday, the analysts led by Lydia Rainforth suggested that net income at these companies is "set to recover" during the period, estimating a jump in profit of "up close to" 30% quarter-on-quarter despite Brent crude prices staying "flat" in the opening months of 2025.
"The narrative for the energy sector coming into the year was that a wave of new non-OPEC supply combined with the reversal of the OPEC+ V8 cuts would overwhelm another year of tepid demand growth," the analysts wrote, referring the eight countries in the oil group that previously made voluntary production drawdowns.
"Critically, though, this assumed a balanced market to start with, and inventory draws at the start of the year suggest a tighter market than initially envisaged."
The projected uptick in earnings reflects "strong European natural gas prices and potentially higher trading contribution, particularly in the gas and power market given higher volatility," the Barclays analysts said.
Upstream unit earnings are also forecast to increase by 12% on a quarterly basis, marking the first sequential rise in five quarters, due in part to a "seasonally lower cost base."
The sector is expected to generate "excess" free cash flow this year as well thanks to the anticipated higher net income. For the first quarter, the Barclays analysts estimate a cash breakeven oil price of $46 per barrel to "cover both capex and dividend commitments partly due to seasonally lower capex."
Still, a push to "remain disciplined" and prioritize shareholder returns has been "clear across the capital markets updates provided by the companies over the first quarter," the analysts said.
In individual stocks, BP (LON:BP), Equinor (OL:EQNR) and Shell (LON:SHEL) (AS:SHEL) are likely to "report strong sequential growth" on a percentage basis, the analysts said.