Drill, Baby, Drill

Big oil printing cash

Image source: ViDi Studio, Olex Kmet - Shutterstock

What's going on?

Big Oil bounces back: Exxon Mobil and Chevron’s shares both rose on Friday after their fourth-quarter profits blew through analyst estimates amid a rocky end to 2018.

What does this mean?

The oil price fluctuated tremendously towards end of the year, reaching a four-year high in October and then slipping into its longest-ever decline (making it tricky for analysts to accurately forecast companies’ earnings). Although Exxon’s fourth-quarter profit fell by 28% compared with the same period in 2017, it crushed all expectations. Chevron’s lower expenses helped it beat analysts’ expectations, too – and produce record amounts of oil.

Why should I care?

For markets: Oil be back.

After three months on a greased-up roller coaster, oil explorers have renewed confidence. It can take oil companies decades to recoup costs but, according to Bloomberg, Chevron expects 70% of its projects will be profitable within three years. Exxon is upping its spending on new projects to $30 billion this year and plans to expand a Texan refinery (oil production soared by 90% in the state last quarter – it seems everything is bigger in Texas). With Big Oil opening the taps, investors are diving headfirst into a pool of the black stuff and sending share prices skywards – even though Exxon is resisting investor pressure to announce a share buyback (unlike its peers).

The bigger picture: More jobs, more oil.

Despite a partial government shutdown, the US economy actually added more jobs than expected during January. Employers hired 304,000 workers, the most in 11 months and nearly double expectations. If companies are hiring more workers, it indicates that they may have greater confidence in the economy and so might produce more. More oil would therefore be needed to make things – like sneakers and car tires – and, double whammy, those things get delivered by gas-guzzling trucks and planes. Oil is a barometer for economic health and things are looking pretty well-greased (tweet this).

Originally posted as part of the Finimize daily email.

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