Oil Majors See Record Profits in 2022

The explosion in profits for energy companies over 2022 was one of the key headlines in the equities space. In 2022 overall, leading US energy companies Exxon and chevron made a combined $100 billion in profit, recording their best years on record. Against this backdrop, both companies saw their stock price surging higher with Exxon hitting around +80% at its peak and Chevron hitting around +60% at its peak.

What Goes Up…

The exorbitant rise in oil and gas prices over the first half of the year was largely responsible for these ballooning profits. With oil and gas having rallied around 70% and 165% respectively over H1 2022, Exxon and Chevron were well positioned to benefit having both shunned the move towards greener energy being championed by their European rivals Shell and BP.

Must Come Down…

However, with energy prices having collapsed in recent months and shares in both Exxon and Chevron having stalled, the big question now is whether the top is in for these two stocks or if this is simply a pause before they take another leg higher. A look at both companies recently reported Q4 earnings might help shed some light on this.

Q4 Revenues Fall

Despite recording record profits for the year as whole, both Exxon and Chevron saw revenues fall short of forecasts in Q4. Along with undershooting forecast, both companies reported revenues were down sharply on the prior quarter, continuing the trend of declining quarterly profits from their peak in Q2 2022. In light of the ongoing declines seen in energy prices, it seems reasonable to expect that Q1 2023 results will be weaker still.

Uncertain Outlooks

Both companies noted considerable uncertainty in the outlook. Recessionary risks in the US and Europe as well as the Russia-Ukraine conflict have each been cited as major variables in the outlook. The EIA itself has forecast oil demand to dip sharply in 2023, in line with what we’ve heard from OPEC. In response to this, Exxon and Chevron have said that they take operational decisions accordingly, e.g being more careful about increasing production so as not to drive prices lower.

A Word on Upside Risks

Despite the downside risks for oil prices, however, it is worth noting that each of the variable mentioned hold upside risk. If a recession is avoided in the US, and in Europe, and if the Russia-Ukraine war comes to an end this year, oil prices might well spike higher on fa fresh surge in demand. Additionally, with China having reopened its borders, the prospect of a significant pickup in activity and demand there also has the potential to drive oil prices higher. With this in mind, it might be a little too early to call for a proper reversal lower in these stocks until we see a technical trend reversal in place.

Technical Views

Exxon

Following a brief correction earlier this week, Exxon shares are now trading back above the 114.96 level. With price underpinned by the rising channel lows, the focus remains on further upside while above this level, in line with bullish momentum studies signals. Only a break of 104.40 will negate the near-term bullish view.