Big Oil Earnings Drag Down Energy ETFs

oil gasAfter giving an impressive performance last year, global energy stocks have been underperforming the broad market on falling oil prices, rising global supply, and waning global demand. Notably, energy has been the worst performing sector in the MSCI World Index in the first month of the year.


Oil production in the U.S, the largest oil consumer, saw an increase in production of 992,000 barrels a day in 2013. In fact, the U.S. is expected to overtake Russia as the world’s biggest producer of oil within two years and become energy independent in the next two decades.


Despite the booming shale oil and gas business, U.S. oil giants are seeing shrinking production volumes while operating costs are rising. As such, energy has been the biggest laggard this earnings season with 9.3% decline in earnings and 3.7% decline in revenues so far.


This is particularly true given the disappointing fourth quarter earnings from the U.S. oil giants – Chevron (NYSE:CVX) and Exxon Mobil (NYSE:XOM).


Earnings for Big Oil Companies in Focus


Last week, the largest U.S. oil company, XOM, reported earnings of $1.91 per share for the fourth quarter. Earnings were a penny ahead of the Zacks Consensus Estimate, but fell 13.2% from the year-ago quarter. Total revenue dropped 3.3% year over year to $110.9 billion, missing the Zacks Consensus Estimate of $114.9 billion.


The lackluster result was primarily due to lower oil and gas output that dropped for the ninth time in the past 10 quarters as well as rising cost for building new reserves (read: 3 Energy ETFs with a Choppy Start to 2014).


Chevron, which trails XOM, was hit by higher costs, lower production and lower margins at refineries in the fourth quarter. Earnings per share came in at $2.57, falling short of the Zacks Consensus Estimate by a penny, and 30.5% below the year-ago earnings. Revenues fell 7% to $56.16 billion and were far from the Zacks Consensus Estimate of $76.43 billion.


Market Impact


The sluggish performance from these two giants has definitely impacted their share prices. Exxon Mobil lost more than 3% over the past two trading sessions following the earnings announcement on January 30. On the other hand, CVX lost over 4% on the day of its earnings announcement (January 31).



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