"Wall Street expected less, but Exxon and Chevron delivered more than forecast—even as profits dropped by nearly half."
First-Quarter Financial Performance
ExxonMobil reported net income of $4.2 billion for the first quarter, a decrease of 46% compared to $7.7 billion in the same period of the prior year. Chevron reported net income of $2.2 billion, a decrease of 37% compared to $3.5 billion year-over-year. Despite the declines, both companies' results exceeded Wall Street analyst forecasts.
Factors Cited for the Decline
- Derivatives and Timing Effects: Both companies attributed part of the profit decline to financial derivatives trades losing value due to oil price spikes. Exxon cited "timing effects" and volume impacts; excluding these, the company stated earnings were $8.8 billion. Chevron reported unfavorable timing effects of approximately $3 billion for the quarter.
- Supply Disruptions: Stalled deliveries and supply disruptions in the Middle East affected earnings. Exxon CEO Darren Woods explained that hedges are booked while physical barrels remain in inventory, deferring profit recognition.
Analyst Outlook and Market Fundamentals
Analysts project ExxonMobil's second-quarter earnings to more than double from the prior year, and full-year earnings to increase by 46%. Analysts project Chevron's second-quarter profits to more than triple, and full-year profits to rise 56%. If realized, these would be the companies' best annual results since 2022.
Energy advisory firm TPH estimates that US gasoline crack spreads averaged about $25 per barrel in Q2, up roughly $16 from Q1. Diesel crack spreads rose about $15 to roughly $45 per barrel, the strongest since mid-2022.
War-Driven Market Conditions
The US/Israel-Iran war, which began on February 28, has disrupted global refining capacity. Oil and gas prices rose before the conflict began and surged after its start.
- The closure of the Strait of Hormuz, which handles approximately 20% of global oil output, has affected global energy markets and oil futures prices.
- Robust demand for US exports has amplified gains as the war left refiners abroad short of supplies.
- Neither ExxonMobil nor Chevron lost significant oil production from the closure, as most of their production is outside the Middle East.
Industry and Market Context
- BP reported doubled profits in the last quarter, citing "exceptional oil trading"—its highest since 2023.
- ConocoPhillips cut its annual output forecast due to disruptions in Qatar's LNG operations from the war.
- Iranian attacks on QatarEnergy LNG's export plant will take years to repair.
Stock Market Impact
Chevron and Exxon stock rose early in the war but declined in April after a US-Iran ceasefire and reopening of the Strait of Hormuz. Lockheed Martin stock initially rose 25% since the start of the year but has since fallen to prior levels.
Consumer Impact
The US average gas price on a recent Friday was $4.39 per gallon, up 39 cents in the previous 9 days and 47% higher than before the Iran war. This compares to $3.187 per gallon one year ago. Americans face concerns over elevated inflation and slow job growth amid the Middle East turmoil.
Political Commentary
Former President Donald Trump posted on Truth Social: "The United States is the largest Oil Producer in the World, by far, so when oil prices go up, we make a lot of money."