What's going on?
Chevron and ExxonMobil’s second-quarter results beat expectations on Friday, after a year of trimming the fat helped turn them into lean, mean oil-making machines.
What does this mean?
The second quarter of 2020 was a calamity for oil companies, with almost all of them turning in a loss after oil prices tanked last year. That forced them to take a long, hard look at themselves and, ultimately, cut unnecessary costs wherever they could.
Now, though, the slippery elixir’s price has come roaring back: it’s up over 150% in the last year. That’s allowed Exxon and Chevron to sell the oil they’ve been extracting at a higher price, which brought last quarter’s revenue in ahead of expectations. And since they were feeling remarkably cost-light after a year of cuts, their profits beat expectations too. Chevron even made investors’ days by saying it’d start buying back shares again.
Why should I care?
For markets: Oil up, oil stocks up.
Exxon and Chevron’s stocks both initially rose on Friday, which is saying something: analysts had long been expecting energy industry stocks to deliver the highest sales and earnings growth of any sector. That was already reflected in their share prices, with US energy stocks rising 35% this year – more than any other industry – versus the key US stock index’s 19%. And given that their stocks rose on Friday, it suggests investors – who might otherwise have cashed out and sent them down – see even more good news on the horizon.
The bigger picture: Nature is healing.
Data out on Friday showed the eurozone economy grew by a better-than-expected 14% in the second quarter compared to the same time last year, which bodes well for energy demand and the industry’s stocks. But rising oil prices also helped push eurozone inflation over the European Central Bank’s (ECB) target in July – and that could eventually become a problem for the industry if the ECB is forced to slow things down.