Despite a 57% surge in oil prices driven by the Iran conflict, major U.S. oil companies Exxon Mobil and Chevron reported significant drops in first-quarter profits. The downturn was primarily attributed to unfavorable financial hedging activities impacted by supply disruptions in the Middle East.
Q1 Earnings Performance Overview
The two industry giants reported earnings figures that fell sharply compared to the same period last year. Key figures include:
- Exxon Mobil: Net income declined by 45%.
- Chevron: Net income fell by 36%.
Despite the volatility, investor sentiment remained positive, with Exxon shares rising over 1% and Chevron shares gaining about 2% in premarket trading.
Market Context: Oil Price Volatility
Oil prices experienced extreme volatility during the quarter. Initially, prices were depressed due to market expectations of a surplus. However, following the U.S. and Israeli attacks on Iran on February 28th, prices spiked dramatically, leading to what analysts described as the largest oil supply disruption in history.
Financial Impact: Hedging Losses
Both companies cited their financial hedging strategies as the main drag on their reported profits. Exxon Mobil specifically detailed the impact of these hedges:
- Timing Effect: Exxon lost nearly $4 billion on open financial hedges because the value of product shipments was not counted in the quarter due to incomplete delivery.
- Closed Hedges: The company also incurred a $700 million hit on closed hedges that were not offset by physical deliveries due to Middle East disruptions.
Exxon stated that these impacts are temporary and anticipate that the hedges will result in net profits in subsequent quarters once products are delivered.
Company-Specific Earnings Details
Exxon Mobil:
- Reported net income of $4.2 billion ($1.00 per share), down from $7.7 billion ($1.76 per share) last year.
- Excluding negative timing effects and other items, the company reported $1.16 per share in adjusted earnings per share.
- Revenue reached $85.14 billion, surpassing the $82.18 billion expected by analysts.
Chevron:
- Reported a profit of $2.2 billion ($1.11 per share), down from $3.5 billion ($2.00 per share) the previous year.
- After adjustments, Chevron posted $1.41 per share in adjusted earnings per share, beating Wall Street estimates of 95 cents.
- Chevron's revenue was $48.61 billion, missing estimates of $52.1 billion.
In summary, while the geopolitical situation fueled massive oil price increases, the immediate financial reporting was tempered by accounting losses related to supply chain disruptions.
