02 November 2020

US Oil Majors Exceed Earnings Estimates

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News shaping
the markets today

     

What’s happening: Shares of Chevron Corp and Exxon Mobil Corp traded in opposite directions despite both these US oil majors reporting better-than-expected earnings for the latest quarters.

What happened: Oil companies significantly lowered their spending in the third quarter to survive amid the pandemic-induced declined in energy demand.

While Exxon recorded losses for the third consecutive quarter, Chevron managed to report a slim profit.

How were the results: Both oil companies managed to beat earnings estimates for the third quarter.

  • Chevron reported revenues of $24.00 billion, missing the consensus view of $25.91 billion. Despite this miss, its earnings of 11 cents per share came in higher than the expectations of a loss of 27 cents per share.
  • Exxon reported revenues of $46.20 billion, surpassing the consensus estimate of $43.69 billion. Although the company remained in the red, with a loss of 15 cents per share, this was better than expectations of a loss of 25 cents per share.

Why it matters: Oil prices in the US have plummeted around 41% this year, with the covid-19 impacting energy demand amid travel bans.

Although demand somewhat recovered in late summer, providing some support to oil prices, the resurgence of infections in the US and Europe has dampened the demand outlook for energy products. Against this backdrop, oil majors have announced massive job reductions, which has further impacted investor sentiment.

Exxon had started the year with an aggressive spending budget of $33 billion, which included making substantial exploration investments. Given the rapidly spreading pandemic, the company has invested just $16.6 billion over the first three quarters and expects this year’s capital expenditure to be curbed at $19 billion.

Earlier this week, Exxon announced plans to further reduce its workforce by approximately 15%. The company said it will maintain its dividend pay-out at 87 cents per share for the fourth quarter, making 2020 the first year since 1982 in which Exxon has not raised its dividend to shareholders.

Chevron joined Exxon in significantly reducing capex, which helped the company record an unexpected profit for the quarter. Output from its crude and natural gas wells is now at the lowest it has been in more than two years.

The company also announced plans to slash around 6,000 jobs, while scaling back its spending plans. Meanwhile, Chevron completed the acquisition of Noble Energy.

Chevron projects oil and gas output at its top US oil field, the Permian Basin shale, to decline to about 550,000 boepd (barrels of oil equivalent per day) in the fourth quarter, from 565,000 boepd in the third quarter.

How shares responded: Shares of Chevron gained 1% to close at $69.50 on Friday, while Exxon’s stock declined 1.1% to settle at $32.62. Chevron’s stock has tumbled over 42% this year and Exxon has lost more than half its value.

What to watch: Investors will look out for coronavirus numbers and the reopening of the regions currently witnessing the second wave of infections. Markets will keep a close eye on even the slightest increase in oil prices.

The Markets Today

     

US stocks will be in focus today, ahead of manufacturing reports from the country.

Context: Wall Street closed lower on Friday as investors digested quarterly earnings reports from big tech companies. Major US indices recorded their worst weekly declines since March.

Details: Mega-cap tech firms, including Apple, Amazon, Facebook and Alphabet released their earnings after the closing bell on Thursday. Despite all four companies beating expectations, investor sentiment remained lukewarm due to their uncertain growth outlook. Shares of major tech giants headed south on Friday, with the exception of Alphabet’s stock.

Investor sentiment was also hurt by the continued rise in covid-19 cases, with the US recording around 90,000 new infections on Thursday.

Investors globally will be watching the US presidential race, with just a day to go for Election Day. As the polls indicate a Biden win, Wall Street has remained subdued, as this is seen as an end to Trump’s business-supportive policies and the onset of an era of higher taxes, especially for the tech giants.

The Dow Jones index fell 0.59% to close at 26,501.60 on Friday, while the S&P 500 lost 1.21% to reach 3,269.96. The tech-laden Nasdaq 100 dropped 2.45% to settle at 10,911.59, losing 5.5% for the week.

The S&P 500 tumbled 5.6% and the Dow lost around 6.5% last week, notching the worst weekly declines since March.

What to watch: Investors wait on tenterhooks for the US presidential elections. Investors also await a basket of economic reports from the US, including the manufacturing PMI, ISM manufacturing index and construction spending. The IHS Markit manufacturing PMI is expected to rise slightly to 53.3 in October, from 53.2 in September. Analysts project the ISM manufacturing PMI to increase to 55.8 in October, from 55.4 in September. Construction spending is projected to rise 0.9% in September.

Other Markets: European trading indices closed mixed on Friday, with the FTSE 100 and German DAX 30 down 0.08% and 0.36%, respectively, and the French 40 closing higher by 0.54%.

Support & Resistances
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Futures at 0400 (GMT)

What else to watch today

     

Spain’s manufacturing PMI, Italy’s manufacturing PMI, France’s manufacturing PMI and new car registration, Germany’s manufacturing PMI, Eurozone’s manufacturing PMI, South Africa's Absa manufacturing PMI and vehicle sales, UK’s manufacturing PMI, Russia’s monetary policy report, Mexico’s foreign exchange reserves as well as Canada’s manufacturing PMI.

 

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