Exxon Mobil and Royal Dutch Shell this week reported their lowest quarterly profits since 1999 and 2005, respectively. Chevron’s third straight loss marked the longest slump in 27 years, and BP lodged its lowest refining margins in six years.
Welcome to year two of a supply overhang so persistent it’s upsetting industry expectations that the market would return to a state of balance between production and demand. It’s left analysts befuddled and investors running to the doorways as the crude market threatened to tip into yet another bear market, dashing hopes that a slump that began in mid-2014 would show signs of abating.
Exxon missed analyst estimates by 23 cents a share and fell as much as 4.5 per cent on Friday before recouping some of that decline. Chevron posted a surprise $1.47 billion loss after booking $2.8 billion in writedowns. The company’s per-share loss of 78 cents was in stark contrast to the 19- to 41-cent gains expected by analysts. BP and Shell registered similarly gloomy outcomes.
“What we’re seeing is that there’s just no place for the supermajors to hide,” Brian Youngberg, an analyst at Edward Jones & Co in St Louis, said in an interview. “Oil prices, natural gas, refining, it all looks very bad right now.”
Crude prices dropped during the quarter from a year ago amid a global glut in the $1.5 trillion-a-year market. With diesel and gasoline prices also slumping, the companies were deprived of the tempering effect oil refining typically provides during times of low crude prices.
Given the plunge in crude and natural gas markets, “you cannot recover, no matter how efficient you are,” Fadel Gheit, an analyst at Oppenheimer & Co, said during an interview with Bloomberg Television. “The industry cannot survive on current oil prices.”
Shell reported its weakest quarterly result in 11 years and missed analysts’ estimates by more than $1 billion. BP said earnings tumbled 45 per cent amid the lowest refining margins for the second quarter since 2010. US margins, based on futures contracts, plunged 30 per cent to a second-quarter average of $17.12 a barrel from $24.42 a year earlier.
Refining profits will continue to be under “significant pressure,” BP said. Although Brent crude’s rebound provided some relief compared with the first quarter, CEO Bob Dudley still faces a difficult road ahead as the rally fades amid slowing demand growth and returning production from Canada to Nigeria.
BP’s profit, adjusted for one-time items and inventory changes, dropped to $720 million from $1.3 billion a year earlier, the company said on July 26. That missed the $819 million average estimate of 13 analysts surveyed by Bloomberg. Downstream earnings, which include refining, declined 19 per cent.
Exxon, the world’s biggest oil explorer by market value, said wildfires that ravaged the oil-sands region of Western Canada, along with ageing wells, reduced output. Its US oil and natural gas wells lost an average of $5.6 million a day during the quarter.