Exxon Mobil and Chevron reported lower first-quarter profits on Friday, as disruptions from the Iran war took a toll on their earnings despite both companies beating Wall Street expectations.
Key Takeaways
Exxon Mobil and Chevron reported lower first-quarter profits due to disruptions from the Iran war, despite beating Wall Street expectations. Exxon's net income fell 45% year-over-year to $4.2 billion, while Chevron's dropped 36% to $2.2 billion.
- Exxon and Chevron Q1 profits declined but exceeded estimates
- Disruptions from Iran war impacted earnings through financial hedges
- Oil prices surged due to Strait of Hormuz closures affecting global supply
- Gasoline prices in the U.S. reached a multiyear high of $4.39 per gallon
- Companies expect reversal of negative impacts in subsequent quarters
The companies attributed the declines to financial hedges that backfired due to supply chain disruptions caused by the conflict in the Middle East. According to Reuters, Exxon's net income fell 45% year-over-year to $4.2 billion, while Chevron's dropped 36% to $2.2 billion.
Exxon's adjusted earnings were $1.16 per share, surpassing analysts' estimates of $1.07 per share as reported by PBS. Chevron's adjusted profit was $1.41 per share, exceeding expectations of 92 cents per share according to Reuters. The companies' shares ticked higher before the market open on Friday.
The Iran war has significantly disrupted global energy markets, particularly by choking off shipping through the Strait of Hormuz since late February. About 20% of the world's oil passes through this strait, and its near closure has driven up oil prices globally per CNBC. Exxon CEO Darren Woods told CNBC that about 15% of Exxon's production is impacted by the war.
In a prepared statement, Exxon said that “timing effects” and volume impacts in the Middle East reduced reported earnings; when excluding those effects, the company reported $8.8 billion in profit. At Chevron, unfavorable timing effects totaled about $3 billion for the quarter, according to The Guardian.
Woods emphasized during an interview with CNBC that “timing” issues caused deferred profits due to market volatility at the end of the quarter. He clarified that while hedges and paper positions were booked, physical barrels remained in inventory until delivery, affecting reported earnings.
The companies' results come at a time when gasoline prices in the U.S. have hit new multiyear highs, reaching $4.39 per gallon on Friday according to PBS. This surge has squeezed budgets for lower- and middle-income families and disrupted businesses sensitive to higher fuel costs.
Both Exxon and Chevron expect the negative impacts from financial hedges to reverse in subsequent quarters as the physical delivery of oil resumes. Chevron CFO Eimear Bonner told Reuters that paper positions worth about $1 billion are expected to close and result in profit in the second quarter.
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