Exxon Mobil CEO Darren Woods predicted that crude oil and fuel prices will continue to surge higher in the weeks ahead if the Strait of Hormuz remains blockaded. Both Exxon and Chevron are projecting big profit gains in the ongoing second quarter because of higher prices, even with some of their Middle Eastern operations remaining disrupted.
Exxon and Chevron reported first-quarter profits on Friday that beat market expectations, but they both saw their net incomes dip precipitously year-over-year because of lower oil prices early in the year, poorly timed financial hedges, and operational woes in the Middle East and beyond. Chevron, for instance, had to recover from a major fire in January at its massive Kazakhstan operations.
Exxon CEO Woods said that oil prices—even above $100 per barrel—don’t come close to matching the “historically unprecedented disruption” of almost 20% of the world’s oil and liquefied natural gas (LNG) which flows through the Strait of Hormuz from the ongoing war in Iran.
“If you look at the unprecedented disruption in the world’s supply of oil and natural gas, the market hasn’t seen the full impact of that yet,” Woods said. “So there’s more to come if the strait remains closed.”
There were lots of waterborne deliveries already on their way during the first month or so of the war, so those volumes temporarily kept supplies coming. But those are gone now, and commercial and national inventories are being drawn down each day, Woods said.
Exxon and Chevron are not hiking spending plans and drilling activity to ramp up oil and gas production any further than planned—despite the White House’s pleas to pump more oil—but they are increasing the utilization of their oil refineries and petrochemical plants—including delaying planned maintenance—to take advantage of global supply shortages.
Chevron CEO Mike Wirth said it doesn’t make sense to enact long-term spending changes when so many question marks from the war remain.
“It’s early to have firm conclusions about how the energy system will change in the long term. I do think there will be changes,” Wirth said. “But we have to see how things play out over the coming weeks—hopefully not longer than that.”
Whenever the strait is fully reopened, Woods said it will take a couple of months to resume normal flows, excluding longer-term repairs needed to Qatar’s LNG operations, which are partially owned by Exxon.
“Whether or not a risk premium gets put into the market, I think, is a question that is yet to be answered,” Woods said of longer-term price hikes. A lot of that depends on how much control Iran has over the strait after the war, and how “uninterrupted” the strait remains once opened.
Both Exxon and Chevron are heavily involved in the Middle East, but the region makes up less than 5% of their global operations. Exxon’s refining and petrochemicals in Saudi Arabia are disrupted, as well as LNG in Qatar, and so is its oil production in the United Arab Emirates. With the UAE announcing plans to exit OPEC in order to produce more oil after the war, Woods said Exxon would follow suit to ramp up its activities in coordination with the UAE.
Likewise, Chevron’s oil production in Saudi Arabia and Kuwait remains disrupted, as are its petrochemical operations in Saudi Arabia and Qatar. But Chevron’s natural gas production offshore of Israel already has resumed normal flows.
Exxon reported a $4.18 billion quarterly profit, but that’s down 46% year-over-year. Chevron posted a $2.21 billion profit, down 37% year-over-year.
Exxon’s and Chevron’s stocks both fell about 1% on Friday, although their market caps remains near all-time highs. That’s $635 billion for Exxon, and $380 billion for Chevron.
From the Permian to Venezuela
Chevron is the only U.S. company churning out oil in Venezuela, but Wirth said he is holding off before investing more.
While Chevron is making incremental production hikes using existing cash flows, Wirth said he’ll wait to see how Venezuela’s continues tweaking its laws and regulatory reforms first. Progress is being made, he acknowledged.
But “there are still questions,” Wirth said. “We need to see further progress before we would put more capital to work”
Exxon, which left Venezuela after having its assets expropriated almost 20 years ago, is considering re-entering the country while taking a wait-and-see approach on the reforms. Exxon’s experience with the heavier grades of Canadian oil sands should translate nicely to the extra heavy and thick crude oil from Venezuela, Woods said.
Where Exxon and Chevron are taking different approaches is the still-booming Permian Basin in West Texas where they rank first and second in total production.
Exxon is churning out more than 1.7 million barrels of oil equivalent per day from the Permian—its largest base of production globally—while aiming to grow to 2.5 million barrels by 2030.
“We’ve had the pedal to the metal here from the very beginning. We are running full speed, unlike many of our competitors,” Woods said in an apparent nod to Chevron.
Chevron grew its Permian volumes to more than 1 million barrels of oil equivalent daily, but has now chosen to cut costs and keep its production steady to turn the Permian into a cheaper cash flow machine.
More spending might “dilute that focus,” Wirth said.
“It’s really steady as she goes,” he added.
Exxon Mobil’s CEO Darren Woods has indicated that crude oil and fuel prices are likely to rise significantly in the near future if the Strait of Hormuz remains blocked due to ongoing conflicts in Iran. Both Exxon and Chevron are projecting substantial profits for the second quarter, driven by increased oil prices, despite facing operational disruptions in the Middle East.
In their recent first-quarter earnings reports, Exxon and Chevron exceeded market expectations; however, both companies experienced a marked year-over-year decline in net income due to lower oil prices at the beginning of the year, unfavorable financial hedges, and operational challenges, particularly in the Middle East. For example, Chevron is still recovering from a major fire at its operations in Kazakhstan earlier in January.
Woods emphasized that oil prices, even those exceeding $100 per barrel, do not reflect the « historically unprecedented disruption » affecting nearly 20% of the world’s oil and liquefied natural gas (LNG) that transits through the Strait of Hormuz due to the war in Iran. He stated, “If you look at the unprecedented disruption in the world’s supply of oil and natural gas, the market hasn’t seen the full impact of that yet. So there’s more to come if the strait remains closed.”
During the initial stages of the conflict, there were sufficient waterborne deliveries to maintain supply levels temporarily. However, those volumes have diminished, leading to a daily drawdown of commercial and national inventories. Notably, Exxon and Chevron are not increasing their capital expenditures or drilling activities in response to the White House’s calls for increased oil production. Instead, they are optimizing the use of their oil refineries and petrochemical plants, including postponing maintenance, to capitalize on the global supply shortages.
Chevron’s CEO Mike Wirth pointed out that making long-term spending adjustments is premature given the current uncertainties stemming from the war. He noted, “It’s early to have firm conclusions about how the energy system will change in the long term. I do think there will be changes. But we have to see how things play out over the coming weeks—hopefully not longer than that.”
Woods predicted that once the Strait of Hormuz is reopened, it would take several months to restore normal operations, particularly for Qatar’s LNG facilities, which are partially owned by Exxon. He remarked on the potential for a risk premium in the market, which would depend on Iran’s influence over the strait post-conflict and the uninterrupted nature of its operations once it reopens.
Both Exxon and Chevron have significant interests in the Middle East, but this region constitutes less than 5% of their overall operations. Exxon is experiencing disruptions in its refining and petrochemical operations in Saudi Arabia, LNG operations in Qatar, and oil production in the United Arab Emirates (UAE). Following the UAE’s announcement to exit OPEC to boost oil production post-conflict, Woods indicated that Exxon would coordinate its efforts to increase production in alignment with the UAE’s plans.
Similarly, Chevron’s oil production in Saudi Arabia and Kuwait is also impacted, along with its petrochemical operations in the region. However, the company has successfully resumed normal natural gas production offshore Israel.
In terms of financial performance, Exxon reported a quarterly profit of $4.18 billion, a 46% decline compared to the previous year, while Chevron posted a profit of $2.21 billion, down 37% year-over-year. Despite these declines, both companies’ stock prices fell approximately 1% on the reporting day, but their market capitalizations remain near record levels, with Exxon at $635 billion and Chevron at $380 billion.
On the subject of Venezuela, Chevron is the only U.S. company currently producing oil there, but Wirth has opted to hold off on further investments until there is clarity on the evolving legal and regulatory landscape in the country. While Chevron is incrementally increasing production from existing cash flows, Wirth emphasized the need for more progress before committing additional capital.
Exxon, which exited Venezuela nearly 20 years ago following the expropriation of its assets, is contemplating a potential return, taking into account the recent reforms in the country. Woods mentioned that Exxon’s expertise with heavier grades of Canadian oil sands could be advantageous in dealing with Venezuela’s extra heavy crude oil.
In contrast, Exxon and Chevron have adopted different strategies in the booming Permian Basin in West Texas, where they rank as the top two producers. Exxon is currently producing over 1.7 million barrels of oil equivalent per day from the Permian and aims to increase that output to 2.5 million barrels by 2030. Woods stated that Exxon has been operating at full capacity from the outset, differentiating itself from competitors.
Chevron, on the other hand, has increased its Permian production to over 1 million barrels of oil equivalent daily but has opted to focus on cost management and steady production levels, transforming the Permian into a more efficient cash flow generator. Wirth noted, “It’s really steady as she goes,” indicating a cautious approach to future expenditures in the region.
In summary, both Exxon and Chevron are navigating complex dynamics in the oil market exacerbated by geopolitical tensions, while also adapting their operational strategies in a rapidly changing environment. The outlook for oil prices and production remains uncertain, hinging on developments in the Middle East and the broader energy landscape.
