Higher Oil Prices Could Force Rethink of 2026 Corporate Earnings Forecasts

BY COMFORT OGBONNA

U.S. companies may face structurally higher oil prices throughout the year even if the conflict with Iran ends soon, raising concerns that investors may need to reconsider the optimistic outlook for corporate earnings in 2026.

At the beginning of the year, market expectations suggested that oil prices would remain relatively weak, while forecasts for corporate earnings growth on Wall Street were highly optimistic. Analysts widely predicted strong profit expansion for companies across multiple sectors.

That optimism has not yet changed significantly. As of Friday, data from LSEG showed that analysts still expect full-year 2026 earnings growth of nearly 16%. This projection is higher than the 14% estimate from last year and the 12% outlook from the year before.

However, these projections were built on the assumption that oil prices would average around $60 per barrel this year. That expectation quickly collapsed following the U.S. and Israeli strikes on Iran on February 28 and the supply disruptions that followed.

The oil market has since experienced extreme volatility. Crude prices recorded their largest weekly surge on record last week, climbing close to $120 per barrel before falling again as investors speculated that the conflict might end quickly.

Even if prices eventually decline when tensions ease, analysts say the global energy system has already been significantly disrupted. Infrastructure damage, supply interruptions, and the disappearance of the previously expected oversupply have changed the outlook for energy markets.

As a result, average oil prices this year are likely to be far higher than what companies originally budgeted for at the start of the year. Businesses may absorb part of the increased costs, but consumers are also expected to feel the impact through higher prices. Either way, corporate profit margins could face increasing pressure.

Late last year, a survey of analysts showed expectations that Brent crude would average about $61.27 per barrel in 2026. Those projections assumed that excess supply would offset potential disruptions from rising tensions between the United States and Iran. The forecast would have represented a 7% drop from the 2025 average of $68.20.

Those expectations have now changed dramatically.

Analysts at HSBC recently raised their forecast for the average Brent crude price in 2026 to $80 per barrel, up from an earlier estimate of $65. They also increased their outlook for U.S. West Texas Intermediate crude to $76 per barrel from $61, marking increases of roughly 23% and 25%.

Similarly, the U.S. Energy Information Administration raised its projection for the average Brent crude price in 2026 to $79 per barrel, compared with $58 in its previous forecast — a jump of about 36%.

Few parts of the economy are likely to escape the consequences of higher energy prices. The costs of gasoline, jet fuel, fertilizers, petrochemicals, and plastics are expected to rise, creating ripple effects across industries such as transportation, manufacturing, metals, retail, and food production.

Economists warn that rising energy costs can eventually weaken economic activity by reducing consumption and squeezing corporate profits.

Joe Brusuelas, chief economist at RSM US LLP, noted that as prices climb, consumer spending tends to decline, which ultimately puts pressure on corporate earnings.

Strategists at Goldman Sachs believe that moderately higher oil prices may have only a limited direct impact on profits for companies in the S&P 500 index. However, they warn that prolonged supply disruptions or continued uncertainty in energy markets could significantly slow economic growth.

Their analysis suggests that for every one-percentage-point drop in real U.S. GDP growth, earnings per share for companies in the S&P 500 could fall by around 3% to 4%.

Other estimates indicate that a 30% increase in oil prices could reduce S&P 500 earnings by as much as 4%, with the heaviest impact falling on sectors such as transportation, industrial companies, and consumer discretionary businesses.

Consumer spending accounts for roughly 70% of the U.S. economy, meaning that rising fuel costs can quickly strain household budgets. When families spend more on energy, they typically reduce spending in other areas, which can slow economic growth.

Warning signs are already appearing. Average gasoline prices in the United States have climbed above $3.50 per gallon, according to data from the American Automobile Association. That represents an increase of about 17% compared with levels before the conflict began.

Higher oil prices can also produce winners, particularly within the energy sector, where profits could grow significantly if prices remain elevated. However, energy companies represent only about 4% to 5% of total earnings in the S&P 500, meaning their gains are unlikely to fully offset the pressure faced by other industries.

Earnings forecasts for 2026 also vary widely across sectors.

Current projections show that the energy sector may experience declining profits, with earnings per share expected to fall by about 1.2%. This makes it the weakest outlook among the 11 major sectors of the market.

At the opposite end of the spectrum, the technology sector continues to show the strongest expected growth. Analysts forecast earnings growth of about 35.9% for technology companies in 2026, up from roughly 30.8% at the start of the year. Technology firms have been responsible for much of the earnings expansion in the S&P 500 in recent years.

However, rising energy prices could create new challenges even for major technology companies. Analysts at UBS estimate that capital spending by large cloud and technology companies — often referred to as “hyperscalers” — could reach $770 billion this year. The construction and operation of massive data centers required for artificial intelligence systems consume enormous amounts of electricity, meaning higher energy prices could significantly increase operating costs.

Investors were already questioning whether the massive investments being made in artificial intelligence infrastructure would generate strong returns. If energy costs continue rising, those concerns could deepen at a time when economic risks are growing across multiple sectors.