Chevron Kickstarts Earnings Season for Oil Majors

The news shaping the markets today

Japan’s retail sales grew 1.4% year-over-year in December. This being the third consecutive month of retail sales growth sent the Nikkei 225 index higher this morning.

China’s official NBS non-manufacturing PMI fell to a five-month low of 51.1 in January, from 52.7 a month ago. However, the CNY/USD forex pair remained flat after the news.

Australia’s private sector credit rose by 0.8% in December, versus 1.0% growth in the earlier month, sending the AUD/USD pair higher in forex trading this morning.

Singapore’s bank loans rose to a record high of S$816.8 billion in December, from S$805.9 billion in the previous month, exerting pressure on the SGD/USD forex pair.

Japan’s industrial production contracted by 1.0% in December, versus market expectations of a 0.8% decline. Industrial output declining for the first time since September sent the JPY/USD lower in forex trading this morning.

What’s happening: Shares of Chevron Corporation fell on Friday, after the company reported disappointing earnings for its fourth quarter.

What happened: Chevron is the first major oil company to report results for the fourth quarter of 2021.

The stock, which had surged to new highs on Thursday on optimism around the results, slid on Friday, despite the company swinging to profits in the fourth quarter.

How were the results: The San Ramon, California-based company reported a profit for the fourth quarter but the figure still missed expectations.

• Revenues came in at $48.1 billion, beating the Street expectations of $45.3 billion.
• Chevron reported its net income at $5.06 billion, versus a year-ago loss of $665 million.
• Adjusted earnings came in at $2.56 per share, versus the consensus estimate of $3.13 per share.

Why it matters: Crude oil prices have surged due to rising demand with the recovery of the global economy and the OPEC+ (Organization of the Petroleum Exporting Countries and its allies) being unable to meet its output targets.

Despite the spike in oil prices, Chevron was unable to meet the profit expectations for the fourth quarter. The company reported earnings of $15.6 billion for the full year, reaching the highest figure since 2014. Chevron had recorded a loss of $5.5 billion in 2020.

“In 2021, we delivered record free cash flow and accelerated our progress towards a lower carbon future…We’re more capital and cost-efficient, enabling us to return more cash to shareholders,” CEO Mike Wirth said during the earnings call in an attempt to reassure investors.

The company’s oil and gas production contracted by 5% to 3.12 million bpd (barrels per day) during the quarter. Management also issued a weak forecast for 2022, projecting oil and gas production to be flat to 3% lower amid expiration of contracts in Indonesia and Thailand.

Chevron also reported weak operating results in its oil and gas production and refining businesses. Although operating profits rose to $5.2 billion in the upstream segment, from $501 million in the year-ago period, the figure still missed the consensus estimate of $6.6 billion.

Earnings from the downstream segment came in at $760 million, versus a year-ago loss of $338 million.

The company had boosted its quarterly dividend by 4% to $1.34 per share during 2021, while also repurchasing $1.4 billion of its stock and lowering debt by $12.9 billion. Chevron raised its dividend by another 6% to $1.42 per share last week and announced share buyback plans worth $1.25 billion for the first quarter.

How shares responded: Chevron’s shares fell 3.5% to close at $130.61 on Friday following the release of quarterly results. The stock has gained around 11% over the past month.

What to watch: Investors will keep an eye on earnings from other major energy companies, with Exxon Mobil set to report on Tuesday and Shell on Thursday. Markets will also monitor oil prices, as this is among the biggest drivers of earnings for energy majors.

The markets today

Gold will be in focus today after recording a loss last week.

Context: Gold prices moved lower on Friday to end its worst week since November.

Details: Gold prices came under pressure last week, as growing expectations of an interest rate hike by the US Federal Reserve sent the greenback to multi-month highs.

The US Fed reiterated plans to end tapering and signalled a rake hike as early as March in a bid to control inflation. Higher interest rates raise the opportunity cost of holding non-yielding gold. An economic report released on Friday showed a 5.8% surge in the personal consumption expenditure price index, which is the Fed’s preferred measure of inflation, in December.

Expectations of a rate hike helped the US dollar index, which measures the greenback’s performance versus a basket of major rivals, rise to an 18-month high on Friday. This made the safe-haven metal more expensive for foreign traders. The US dollar index recorded a weekly gain of around 1.3%.

The World Gold Council projected strong demand for jewellery, small bars, and coins in 2022, which is expected to support gold prices ahead.

April gold fell 0.5% to settle at $1,786.60 an ounce on Friday, reaching its lowest settlement price since December 15. Gold recorded a loss of 2.5% for the week, the biggest weekly downturn since November 2021.

Silver for March delivery fell 1.7% to close at $22.301 an ounce on Friday, after declining around 5% in the previous session. The white metal lost 8.3% in the week, making it the worst week since September 2020.

Among other metals, palladium rose 0.4% to $2,375.30 an ounce, recording the strongest finish since September. April platinum fell 1.5% to $1,006.60 an ounce, down around 2.8% for the week. March copper shed 2.6% to reach $4.31 a pound, recording a weekly decline of 4.7%.

What to watch: Markets will keep an eye on the high volatility in the stock market and rising inflation figures, as gold is widely considered a hedge against both.

Other Markets: US indices closed higher on Friday, with the Dow Jones, S&P 500 and Nasdaq 100 up by 1.65%, 2.43% and 3.22%, respectively.

Support & resistances for today

Market snapshot

What else to watch today

Turkey’s balance of trade, tourism revenues and tourist arrivals, Spain’s consumer prices, retail sales and current account, Italy’s gross domestic product, Eurozone’s GDP growth rate, Brazil’s government budget value, nonfarm payrolls and Central Bank of Brazil’s focus market readout, India’s infrastructure output, central government budget value and fiscal year GDP growth, Mexico’s GDP growth rate, South Africa’s balance of trade, Germany’s inflation rate, Russia’s money supply M2, Canada’s producer price inflation and raw materials prices, as well as US Chicago business barometer and Dallas Fed manufacturing index.