Oil behemoths Exxon Mobil Corporation (XOM) and Chevron Corporation (CVX) recently reported third-quarter results, indicating enduring difficulties in accelerating oil production growth. Earnings have significantly dropped from the year-ago quarter, failing to meet the Wall Street projections. Nonetheless, both firms reported an upswing in earnings quarterly.
XOM’s oil production has tumbled, while CVX has faced setbacks impacting key growth endeavors in Kazakhstan and the major hubs of oil production, including the Permian Basin in West Texas and New Mexico.
The market reaction to the earnings reports was swift and severe. CVX’s shares plunged about 7%, and a descent of 1.9% in XOM’s shares was observed despite rising oil prices due to escalating tensions in the Middle East. This response underscores investor anxieties about these fossil fuel behemoths’ long-term viability and fiscal discipline relative to sectors like technology.
Both companies confirmed technical issues in the Permian region, including constraints on wastewater production, high concentrations of carbon dioxide in natural gas, and challenges encountered by production partners during fracking operations. The complications of oil production expansion, coupled with operational problems, are anticipated to influence a surge in industry-wide costs.
However, not all seems grim for the oil corporations. The oil majors are reportedly amplifying their capital investments within the oil and gas sector, undeterred by growing global consensus on a shift towards clean energy alternatives. The acquisitions underscore the enduring interest of the oil companies in profitable oil and gas ventures.
These strategic moves suggest that these corporations do not anticipate a decline in oil demand in the future. Instead, they lean toward believing that oil’s role will remain pivotal in the world’s energy matrix for the foreseeable future.
The International Energy Agency’s (IEA) forecast of oil demand peaking by 2030 amid expanded use of renewable energy sources. The prediction undermines the justification for increased expenditure on fossil fuels and further prompts the question of why cash-rich oil titans are not pivoting toward green energy ventures.
The answer lies partly in the clean energy transition being a long-term, costly process, complicated further by the current economic backdrop of persistent inflation, escalating borrowing expenses, and continual supply chain difficulties.
For the past two years, geopolitical instability – from Russia’s military aggression in Ukraine to long-standing conflicts in the Middle East, has fostered unpredictability in energy prices. This has prompted concerns over energy demand, infusing uncertainties in the market. Additionally, easing oil and natural gas prices has exacerbated the profitability challenges of XOM and CVX.
A cautious approach has pervaded the market, with participants adopting a vigilant stance, awaiting the outcomes of pivotal events, including the U.S. Federal Reserve policy meeting and China’s latest manufacturing data.
In its most recent Commodity Markets Outlook, the World Bank projected global oil prices to reach around $90 a barrel during the last quarter of the year before diminishing to an average of $81 a barrel throughout the coming year as global economic growth decelerates. Such a decline could cast a shadow over the financial health of XOM and CVX.
These corporations, heavily vested in the extraction and sale of oil and gas, stand at risk of substantial revenue reductions, which could compromise their net profitability. Dwindling prices could pose formidable challenges for these companies in securing funds for new ventures and investments, jeopardizing their future profitability.
On the flip side, however…
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