TLDR
- Exxon Mobil cautioned that declining crude prices might reduce its Q4 upstream profit by between $800 million and $1.2 billion.
- Oil prices fell sharply towards the end of 2024, with Brent crude finishing the year down 19% and WTI down almost 20%.
- Fluctuations in natural gas prices could affect earnings by anywhere from a $300 million loss to a $100 million gain.
- Improved refining margins could contribute an additional $300 million to $700 million to downstream profit for the quarter.
- Charges related to restructuring are projected to lower overall earnings by around $200 million.
In a regulatory filing prior to its January 30 earnings announcement, Exxon Mobil indicated that decreased crude prices might reduce its upstream profit by $800 million to $1.2 billion in the fourth quarter.
This advisory positions Exxon as the first major oil firm to indicate potential challenges for the upcoming earnings season. Other industry giants could encounter similar obstacles when they disclose their results in the following weeks.
Oil markets experienced a significant downturn at the close of 2024. Brent crude’s 19% annual decline represented its most considerable yearly drop since 2020.
U.S. West Texas Intermediate crude decreased by nearly 20%. Both benchmarks recorded losses for a third consecutive year, which is the longest such period of decline on record.
The price slump was driven by worries over oversupply and tariff pressures, which eclipsed geopolitical risks. These elements pushed down global benchmarks and compressed upstream profit margins throughout the sector.
Natural Gas and Refining Provide Mixed Signals
Apart from crude, shifts in natural gas prices could cause Exxon’s quarterly upstream earnings to vary from a $300 million loss to a $100 million profit. This broad spectrum indicates the persistent volatility in gas markets.
The outlook for the downstream segment is more positive. Enhanced refining margins have the potential to increase earnings by $300 million to $700 million in the fourth quarter.
This possible gain might alleviate some of the pressure on the upstream side. However, it is unlikely to completely counterbalance the impact of the crude price decline.
Restructuring Costs Add to Pressure
The company also revealed that restructuring expenses will reduce its total profit by approximately $200 million. Exxon stated late last year that its corporate strategy is centered on reducing costs and increasing profitability.
This approach is designed to help the company navigate periods of oil price instability. Nevertheless, the restructuring process incurs immediate costs that will affect net income.
Wall Street analysts anticipate that Exxon will report adjusted earnings of $1.66 per share for the fourth quarter. However, some analysts pointed out that many brokerages have not yet updated their forecasts to account for the lower oil and gas prices.
According to Scotiabank analysts, this situation could result in downward adjustments to earnings estimates. In the third quarter, the company reported upstream earnings of $5.7 billion and a total profit of $7.5 billion.
The stock declined by 9.2% during the quarter ending December 31. This decrease indicated the likelihood of softer performance throughout the energy sector.
Exxon’s preliminary report is widely monitored for insights into the performance of other oil companies. The guidance implies that major oil firms may face a difficult quarter as earnings season progresses.
Analysts currently give XOM stock a Moderate Buy consensus rating, derived from 11 Buy and seven Hold recommendations. The average price target of $132.76 per share suggests a potential upside of 12.05% from current prices.
