More Tough Times Ahead For Exxon And Chevron?

(Photo Credit: Kristine Andreassen)

Two giants in the oil industry report their FQ2 ’15 results before the opening bell tomorrow. Both Exxon Mobile Corporation (XOM) and Chevron Corporation (CVX) will be closely watched as the two juggernauts attempt to build some upward momentum after a sustained period of share price collapse since the latter stages of 2014. The chart below demonstrates the share price declines both Exxon and Chevron have experienced over the past twelve months.  

Leading into the results, Estimize predicts for Exxon (XOM) an EPS number of $1.05 versus Wall Street which forecasts $1.11 EPS. Estimize is also estimating a lower revenue number of $64.169B compared to the Street’s consensus of $66.371B. Exxon has outperformed both Estimize and Wall Street’s predicitions for the past five consecutive quarters, however you would not expect it given the company’s share price performance.

 

Similar to Exxon, Estimize and Wall Street also predict another fall in EPS QoQ for Chevron Corporation (CVX). The Estimize consensus is currently set at $1.11, slightly below Wall Street’s prediction of $1.13. In terms of revenues, the Estimize community forecasts $29.527B in revenues versus Wall Street which estimates a figure of $29.533B.

 

Oil prices globally have fallen off a cliff as OPEC refuse to restrict supply and continue to pump the black gold out of the ground at record rates. The increase in supply by OPEC has been done in an attempt to force higher cost producers, in particular shale gas producers in the United States out of the market. Despite OPEC’s success in driving the price of oil down, the United States is still currently producing oil at a record rate.

U.S. Crude oil prices touched a four month low this morning when it hit $49. This comes as Royal Dutch Shell announced that the company expects oil prices to remain depressed for several years. The statement is only further reiteration after BP’s comments on Tuesday, when they announced that they are of the belief that low oil prices are here to stay. BP’s Chief Executive Bob Dudley was quoted on Tuesday stating that the “external environment remains challenging.”

The supply side of the equation is not the only problem for the oil giants, demand is also waning. The growth rate in demand for oil globally is dampening and many analysts predict the peak of oil demand may come in 2020. Many factors are contributing to this slow down including technology enhancement, more sustainable and clean energy replacements becoming available and a greater concern for the wellbeing of our climate continues to mount pressure political policies across the globe.

So what’s next for Exxon and Chevron? It is hard to predict. However, at this point in time, it is safe to say that times are tough for the oil industry as a whole. In order for Exxon and Chevron to stimulate shareholder enthusiasm, they must be able to demonstrate an ability to cut costs and boost productivity in an attempt to boost earnings in a low oil price environment. This is obviously easier said than done, however necessary if Exxon and Chevron expect to inject positive momentum into their companies stock.