Big Oil Companies Report Strong Earnings
As many of you know, I’ve been bullish on the energy sector. So, in today’s Market 360, I’d like to explain why. We’ll also review a few of the big energy giants’ earnings – Chevron Corporation (NYSE:CVX), Exxon Mobil Corporation (NYSE:XOM), and Shell plc (NYSE:SHEL) – which released their fourth-quarter earnings in the past week.
You may recall that the energy sector had a banner year in 2022: Ending the year up 58%, it was the best-performing sector in the S&P 500.
However, energy has been underperforming so far this year. The Energy Select Sector SPDR Fund (NYSEARCA:XLE), which tracks energy stocks, was down 2% for the month of January. In comparison, the S&P 500 and Dow climbed 6.2% and 2.8%, respectively. The NASDAQ had a phenomenal January, jumping 10.7%.
And there seems to be a lot of anxiety over crude oil prices. MarketWatch reported that “prices for the U.S. and global crude benchmarks marked their biggest monthly declines since November 2022.” Crude oil prices dropped Monday and stayed down through most of the week.
However, I expect crude oil prices to rise steadily in the upcoming months as seasonal demand rises.
The International Energy Agency (IEA) is forecasting record worldwide crude oil demand in 2023 as China reopens its economy to international travel. The IEA is forecasting that crude oil demand will rise 1.9 million barrels a day and reach a record of 101.7 million barrels a day. OPEC and its allies, including Russia, boosted their output by 4.7 million barrels a day in 2022, but then abruptly cut back their production in October.
New global crude oil production is forecasted to rise by 1 million barrels per day from increased output from Brazil, Canada, Guyana, Norway and the U.S. As a result, the IEA is forecasting very tight crude oil supplies, so higher crude oil prices are anticipated in 2023.
So, essentially, the most certain economic event will be that crude oil prices will be rising in the upcoming months due to growing global demand – and the fact that the Biden Administration will no longer be releasing up to 1 million barrels per day from the Strategic Petroleum Reserve (SPR) to manipulate crude oil prices.
Although U.S. crude oil inventories remain high near-term, as seasonal demand picks up crude oil prices are expected to rise to $100 per barrel and peak at $120 per barrel during the summer months.
We’re in the dog days of winter right now, folks, but demand will naturally rise. So, there is no need to panic: Crude oil prices have resumed climbing higher today, so the brief dip in energy prices should be over. Plus, energy companies are still posting fantastic profits.
Case in point…
Chevron Corporation (NYSE:CVX) released its fourth-quarter earnings on Friday, January 27. For the quarter, earnings of $4.09 per share increased 60%, up from $2.56 per share in the same quarter a year ago. This missed analysts’ expectations for earnings of $4.38 per share. Fourth-quarter revenue came in at $56.5 billion. Full-year adjusted earnings were $18.83 per share, more than double the adjusted $8.13 earnings per share last year. Full-year revenue was $246.3 billion, up from revenue of $162.5 billion a year ago.
Chevron Chief Executive Michael Wirth commented, “We delivered record earnings and cash flow in 2022, while increasing investments and growing U.S. production to a company record … The company’s investments increased by more than 75 percent from 2021, and annual U.S. production increased to 1.2 million barrels of oil equivalent per day, led by 16 percent growth in Permian Basin unconventional production.”
Before its earnings report, the company raised its quarterly dividend 6% to $1.51 per share.
Exxon Mobil Corporation (NYSE:XOM) revealed on Monday that production increased by more than 30% in Guyana and the Permian Basin in 2022, which helped the company achieve strong bottom-line growth. Full-year adjusted earnings jumped 161.3% year-over-year to $14.06 per share, up from $5.38 per share in the 2021. Full-year revenue grew 44.8% year-over-year to $413.7 billion. The consensus estimate called for earnings of $13.94 per share on $427.9 billion in revenue.
For the fourth quarter, Exxon Mobil reported adjusted earnings of $3.40 per share, which was up 65.9% from $2.05 per share in the same quarter a year ago. Analysts expected earnings of $3.29 per share. Total fourth-quarter revenue rose 12.3% year-over-year to $95.43 billion, topping estimates for $94.67 billion.
Exxon Mobil noted that it will pay a first-quarter dividend of $0.91 per share on March 10. All shareholders of record on February 14 will receive the dividend.
It was a record year for Shell plc (NYSE:SHEL), which announced its earnings results on Thursday. The oil and gas behemoth achieved earnings that exceeded its previous full-year record by a whopping $10.2 billion. Full-year 2022 earnings totaled $41.6 billion. Adjusted full-year earnings more than doubled year-over-year to $39.9 billion, which also topped the company’s previous record of $28.4 billion (2008).
For the fourth quarter, Shell reported adjusted earnings of $9.81 billion, up from $9.45 billion in the third quarter. The analyst community expected fourth-quarter adjusted earnings of $8.0 billion.
Shell also plans to pay a fourth-quarter dividend of $0.29 per share on March 27. All shareholders of record on February 17 will receive the dividend.
So, I am still very comfortable and confident that energy stocks remain the best bet. These stocks are an oasis for investors seeking steady sales and earnings growth. This is why I’ve been spending the past year loading up on energy stocks in Growth Investor.
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The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
Shell plc (SHEL) and Exxon Mobil Corporation (XOM)
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