Exxon Mobil made $56 billion in revenue final yr, its largest annual haul ever. Chevron earned $36 billion, additionally an organization file. However after a bountiful 2022, the outlook for these corporations and different large oil and fuel producers is cloudy.
They benefited for a lot of final yr from larger costs for practically all fuels because the continued restoration from the pandemic slowdown elevated demand and the Russian invasion of Ukraine strained provides. The panorama already seems to be totally different.
Exxon’s fourth-quarter revenue of $12.75 billion, whereas robust, was down sharply from the $19.7 billion it earned within the third quarter. Oil costs have settled to a degree greater than a 3rd decrease than their peak shortly after the Ukraine struggle started final February, and pure fuel costs have crashed by 70 p.c from their highs in August, largely due to an unseasonably heat winter in a lot of Europe and the USA.
“We don’t know what’s forward in 2023,” Mike Wirth, Chevron’s chief govt, informed analysts final week, including that the uncertainty known as for “operational self-discipline.”
The U.S. Vitality Division has projected that costs for Brent crude oil, the worldwide benchmark, will common $83 a barrel this yr — traditionally excessive, however 18 p.c beneath 2022 ranges. Gasoline-refining margins will slide by practically 30 p.c this yr, the division forecasts, resulting in a nationwide common value for normal gasoline of $3.30 a gallon, greater than a greenback beneath costs following Russia’s invasion of Ukraine in early 2022. The division additionally expects pure fuel costs to common 25 p.c beneath final yr’s.
Whereas decrease costs are a consolation for customers, they take a toll on corporations’ backside strains.
Oil and fuel corporations anticipate a worthwhile 2023, however revenues and earnings ought to drop beneath these in 2022. And even whereas celebrating their earnings, executives warning that the oil enterprise is topic to abrupt swings in provide and demand.
So the businesses have promised traders to not repeat the previous mistake of drilling a lot that costs crash. They’ve been hesitant to maneuver aggressively to broaden manufacturing — as President Biden urged them to do when provides had been pinched — or take significant steps to construct profitability round cleaner fuels. That restraint may imply tighter markets and better costs except there’s a critical recession.
As an alternative, executives mentioned they had been dedicated to returning surplus money to shareholders by growing dividends and shopping for again shares. Chevron introduced a $75 billion buyback program final week. Exxon introduced its personal $50 billion repurchase plan in December.
Whereas critics typically accuse the oil trade of profiteering when costs are excessive, executives say their corporations are susceptible to cycles. Their share costs have rocketed during the last yr after a decade of underperforming virtually each different trade. Solely two years in the past, Exxon reported an annual loss as demand collapsed due to the coronavirus pandemic.
The variables that may decide oil corporations’ profitability this yr are largely out of their management — in each provide and demand. The struggle in Ukraine may broaden or not; a recession in the USA and Europe may very well be deep or averted solely. Costs for fuels, and inflation usually, will largely rely on how occasions play out.
Regardless of the struggle, Europe’s economic system in current months has been stronger than anticipated, largely as a result of the delicate winter has stored fuel demand and costs in verify.
The Worldwide Vitality Company has projected that oil demand this yr will develop modestly, by practically two million barrels a day, reaching 101.7 million barrels a day. Which will assist oil firm earnings.
Feb. 1, 2023, 1:31 a.m. ET
As pandemic restrictions have eased, a rise in air journey has added to the demand on refineries for jet gasoline. The power of oil corporations to supply gasoline at cheap costs may very well be stretched, particularly since they’ve been cautious about growing manufacturing.
And with lockdowns lifted in China, its economic system ought to develop quicker, and demand for oil and fuel ought to enhance, if the nation can overcome a brand new virus surge. However the image stays unfocused. Chinese language oil imports stay low for the second, and Chinese language refineries are gearing up for a restoration by producing extra fuels for home consumption and export.
One other wild card is Russia.
With Russia’s struggle in Ukraine, Russian oil and fuel provides is perhaps constrained by decrease manufacturing due to Western sanctions and a scarcity of international funding. Earlier than the struggle, Russia produced one out of each 10 barrels of oil consumed worldwide. Its exports have declined, though extra slowly than many analysts anticipated on the outset of the struggle.
Total, many within the trade are betting that the stability will tip towards excessive demand, not a glut.
“In opposition to tight provide, demand for oil and fuel is robust, and we imagine it’s going to stay so,” Jeff Miller, chief govt of Halliburton, one of many largest oil-field service corporations, informed analysts final week. He mentioned the one approach to tackle the availability facet of the equation can be “a number of years of elevated funding.”
Even with final yr’s bottom-line bonanza for the oil corporations, executives have been cautious of aggressively pursuing new investments that might yield manufacturing beneficial properties. However there are indications that they could be recalibrating that threat aversion.
“We’re underinvesting as an trade,” Darren Woods, Exxon’s chief govt, informed analysts Tuesday, noting that many oil fields had been depleting. “We see the potential for continued tight markets.”
Exxon reported in December that it will spend $23 billion to $25 billion on exploration and manufacturing this yr, which specialists say may drive a rise of greater than 10 p.c in its manufacturing of oil and fuel. That could be a partial reversal from declines in exercise throughout the pandemic.
Mr. Woods mentioned Tuesday that Exxon’s capital spending relative to opponents’ can be a bonus as the corporate pushed ahead with creating fields within the Permian Basin straddling Texas and New Mexico, and offshore Guyana and Brazil.
He was significantly upbeat about Exxon’s refining-business earnings.
“With economies selecting up, and China popping out of its Covid lockdown and financial development there,” he mentioned, “we’ll proceed to see that tightness and excessive refining margins.”
Chevron plans to spend roughly $17 billion this yr on exploration and manufacturing, over 25 p.c greater than it did final yr however nonetheless lower than the corporate had projected it will spend in 2020 earlier than the pandemic slashed demand for vitality throughout most of 2020 and 2021.
American oil corporations have more and more targeted their investments within the Western Hemisphere. Final yr, Chevron broke its file for oil and fuel manufacturing in the USA whilst its world output declined by greater than 3 p.c in 2022 from the yr earlier than. Exxon reported that it elevated its mixed manufacturing in Guyana and the Permian Basin, its principal development drivers, by over 30 p.c.
However the main oil corporations, significantly Exxon, Chevron and ConocoPhillips, could also be rethinking that technique, and cautiously transferring again to the Center East, after a long time through which they appeared elsewhere to keep away from the turbulence of political strife and expropriations.
Exxon just lately introduced that it had acquired two deepwater blocks for fuel exploration off Egypt. That provides the corporate a big unbroken stretch of sea between Egypt and Cyprus to probe for fuel that would ultimately assist Europe overcome the lack of Russian provides.
Chevron, which operates two fuel fields off Israel, just lately introduced a big discovery off Egypt. In his convention name with analysts, Mr. Wirth mentioned Chevron was engaged on growth plans in Israeli waters and elsewhere within the East Mediterranean.
“We’ve acquired seismic and we’re creating our exploration plans,” he mentioned. “You’ll hear extra about that as we go ahead. So, it’s a excessive precedence.”