Chevron, ExxonMobil Financials Reports Highlight 2023 Uncertainty Over $70 Oil Prices

When OPEC+, the oil cartel bolstered by allies such as Russia, announced a surprise oil production cut in early April, oil prices spiked to five-month highs. From there, it was unclear which way oil would go. Some analysts predicted a recession would sap pricing strength. Others forecast strong oil demand and increased prices. The past week’s first-quarter financial reports from Chevron (CVX), Exxon Mobil (XOM) and top oil field service firms did little to clarify this year’s outlook for oil.

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So far in 2023, oil and natural gas prices have dropped considerably vs. the 2022 levels that drove sky-high profits for oil producers.

U.S. crude oil futures held around $76.70 per barrel Friday. Oil dipped as low as $66.74 in March. U.S. oil futures hit a five-month high $83.38 per barrel on April 12 following the news from OPEC+, which includes the Organization of the Petroleum Exporting Countries and key allies.

The April 2 announcement cut the group’s production quota by 1.15 million barrels a day starting in May. The oil cartel had previously signaled it would hold supply steady throughout 2023. In October, OPEC+ cut output by 2 million barrels per day.

Analysts saw this as a proactive move by OPEC, responding to concerns of a recession hurting oil demand in 2023. The Street took the move as reaction to the risk of a disappointing reopening of China’s economy and a possible recession in the U.S.

Chevron stock advanced 1% Friday during market trade while Exxon Mobil jumped 1.3%. SLB (SLB), formerly known as Schlumberger, edged up 2.9% Friday. Halliburton (HAL) rallied 2.4% and Baker Hughes (BKR) gained 1.4%.

Energy Giants Report Falling Revenue

Ed Yardeni, chief investment strategist for Yardeni Research, said in an interview that oil prices were stable in the first quarter until the OPEC+ production cut.

“Even that didn’t seem to really lead to a sustainable rally in the oil market,” Yardeni said. “It looks as though the price of oil is going to be stuck around the current levels for a while, reflecting the global economy that’s just growing but certainly not booming. Nor is it falling into a recession.”

Phil Flynn, senior analyst at the Price Futures Group, added in a note Thursday that oil demand has not been affected by recent bank failures and that oil prices could fall.

“If oil goes south, I think OPEC will act,” Flynn wrote.

With oil prices dropping from 2022 levels, Chevron and Exxon Mobil topped Wall Street estimates for first-quarter financials Friday. However both companies saw revenue slip compared to a year ago, as the two U.S. majors come off booming profits last year.

Chevron reported earnings up 6% to $3.55 per share in the quarter as sales dropped 6% to $50.79 billion. The California-based company said the profit increase was primarily due to higher margins on refined product sales, which were partially offset by lower upstream realizations.

Worldwide net oil-equivalent production dropped 3% to 2.98 million oil-equivalent barrels per day in Q1. Chevron said this was due to lower international production.

The company also announced capital expenditures totaled $3 billion in the first quarter, up 55% vs. a year ago on the back of “higher investment” in the U.S.

Meanwhile, Exxon Mobil earnings jumped 36% to $2.83 per share with revenue declining 4% to $86.56 billion. The company’s first-quarter net production was 3.8 million oil-equivalent barrels per day, up 4% from last year.

However, Exxon’s upstream earnings totaled $6.5 billion in the first quarter, a 20% drop compared to the fourth-quarter 2022, but a 45% jump from last year. The company said the main driver of this sequential quarterly drop was lower prices, with crude and natural gas realizations down 10% and 23%, respectively.

Will Summer Driving Season Boost Oil Prices?

Driving season is upcoming in the U.S., a time when crude prices usually increase. However, oil prices and gasoline do not appear to be increasing yet this year.

The price of gasoline at the pump averaged $3.627 per gallon Friday, down 12% compared to last year, according to the AAA.

“If this oil price trend continues, drivers may see falling gas prices,” Andrew Gross, AAA spokesperson, said on Thursday.

U.S. crude futures this summer are estimated to hover between $74 and $76 per barrel, according to CME Group. Crude prices are estimated to drop to between $72 and $74 per barrel in the waning months of 2023.

Yardeni said it’s still early to see the effect of the summer driving season on oil prices.

“We need to get into late May and June to see the seasonal effects,” he said. “It looks like Americans are still itching to travel, whether it be in the U.S. by car or flying.”

“That’s likely to be a positive for oil prices, as is the production cut by OPEC,” Yardeni said.

Meanwhile, U.S. natural gas prices Friday were around $2.57 per million British thermal units. Natural gas futures undercut the $2 mark in late February 2023 for the first time since September 2020. Natural gas prices have declined 78% from their August 2022 peak of $10.

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Chevron: Oil Field Service Firms Upbeat

Meanwhile, oil field services and equipment firm Halliburton reported above-forecast Q1 earnings Tuesday. The firm was the latest to post target-topping reports, after SLB and Baker Hughes announced financials last week.

Going into 2023, Baker Hughes, SLB and Halliburton all projected strong oil demand and tight supplies for the foreseeable future. Each oil field services leader also pointed to myriad international growth opportunities, especially in the Middle East.

Halliburton reported earnings ballooning 106% to 72 cents per share. Revenue grew 33% to $5.68 billion in Q1. Revenue from “completion and production” in the first quarter increased 45% to $3.4 billion.

Halliburton CEO Jeff Miller told investors the outlook for 2023 and beyond is “strong.”

“We hear it from our customers, and we see it in our first-quarter results. Our customers are clearly motivated to produce more oil and gas and service capacity is tight,” Miller said.

Meanwhile, SLB EPS soared 85% to 63 cents while revenue ramped up 30% to $7.74 billion. The company’s well construction and production systems revenue increased 36% and 38%, respectively.

SLB CEO Olivier Le Puech said pricing trends were positive. Customers are working to adjust contracts to offset inflation, according to the CEO.

Le Puech added that service capacity continues to tighten across international markets.

“There is broader recognition of the positive long-term demand outlook for oil and gas and the potential for a stronger demand rebound in the second half of the year,” Le Peuch said.

“Recent OPEC+ decisions continue to keep commodity prices at supportive levels — providing operators increased confidence to execute their projects,” he said.

Chevron stock ranks 10th in the Oil & Gas-Integrated industry group. CVX shares have an 80 Composite Rating out of 99. The stock has a 60 Relative Strength Rating. The EPS rating is 77.

Please follow Kit Norton on Twitter @KitNorton for more coverage.

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