Falling Oil Prices Impact Exxon Earnings
As the richest and the biggest oil company in the U.S., you would expect nothing less than impressive earnings results from Exxon Mobil Corp. (XOM, -4.48%). However, this wasn’t the case when the oil giant reported a decline of 52 percent in profits for the second quarter. Unfortunately for Exxon, the company was unable to offset the higher profits seen in its chemical and refining operations against the declining earnings in its production and exploration business which came about as a result of the lower crude prices. Over the past year, the shares of Exxon Mobil have declined 16 percent. After the company reported earnings, their share price traded at $81.50, down 1.8% in premarket trading. Thanks to Exxon’s chemicals and downstream divisions, the company’s profits were boosted as a result of the low oil and gas prices. In fact, in the 1st quarter, these divisions made nearly as much profit as Exxon makes from pumping gas and oil. For the second quarter, downstream or marketing and refining earnings more than doubled from last year. That is, up from $711 million a year ago to $1.51 billion. On the other side, upstream profits, or profits from Exxon’s production and exploration business, declined to $2.03 billion, down 74%. On the upside, Exxon's production improved by 3.6 percent to 4 million oil-equivalent barrels per day. Also on the upside were Exxon’s chemical segment earnings which increased 48% to $1.25 billion. Margins were boosted as a result of lower feedstock costs. In summary, Exxon’s revenue declined to $74.11 billion, down 33% for the 2nd quarter while the company reported a profit of $4.19 billion, or $1 a share. This was down from $8.78 billion, or $2.05 a share, reported in the same period a year ago. Exxon is currently trading at $79.29 a share.
Despite a roller-coaster month, U.S. stocks ended the week and the month of July with modest gains. On Friday though, stocks traded lower. This came in response to a decline in the energy sector which outweighed modest gains seen in other sectors. As a result of a decline in the earnings of energy giants Chevron and Exxon Mobil, there was a large sell off of energy stocks, which negatively impacted all the main equity benchmarks. At the close of trading, the S&P 500 index (SPX) dropped 0.2%, or 4.71 points, to 2,103.90. For the week, the index was up 1.2% while for the month of July, the SPX gained 2 percent. Meanwhile, the Nasdaq Composite index (COMP) ended the trading session on Friday less than a point lower at 5,218.28. Over the week, the tech-heavy index rose 0.8% and 2.9 percent over the month of July. Following the trend was the Dow Jones Industrial Average (DJIA) which declined 0.3%, or 55.32 points, to 17,690.66 on Friday. For the week, the blue chip index gained 0.7% and for the month, the Dow gained 0.4%.
On Friday, the U.S. dollar (USD) traded lower. This came as a result of the release of poor economic reports out of the U.S. which prompted concerns regarding the timing of an interest rate hike by the Federal Reserve. In their preliminary report, the University of Michigan said that its index of consumer sentiment dropped from 93.3 in June to 93.1 in July. This missed expectations for an increase to 94.0. Meanwhile, the Labor Department also reported that the employment costs in the U.S. increased by 0.2% which marked the lowest gain since 1982. Also, data showed that the Chicago PMI (purchasing managers' index) rose from 49.4 in June to 54.7 in July, marking a move into expansion territory for the first time since April. The EUR/USD traded at 1.1080, up 1.35% while the USD/JPY traded at 123.72 down 0.33%. Against the British pound, the Australian dollar and the Swiss franc, the U.S. dollar traded lower with the GBP/USD up 0.18% at 1.5628, the AUD/USD up 0.67% at 0.7342 and with the USD/CHF down 1.33% and trading at 0.9563. The U.S. dollar index was at 96.67, down 0.97%.
In Asian trading on Monday, crude oil prices declined. This came in response to a disappointing manufacturing survey from China. The manufacturing PMI from Japan came in at 51.4 for July while for China, it came in at 51.2. Also, the final Caixin/Markit for July declined to 47.8. WTI crude oil for September delivery traded at $46.80 a barrel, down 0.70%, on the NYMEX. Also, last week, crude oil futures declined sharply on Friday to cap the worst monthly performance in July since the 2008 global financial crisis. On Friday, Brent crude oil for delivery in September traded at $52.21 a barrel, down 2.06%, or $1.10, on the ICE Futures Exchange in London. During the trading session, the contract declined to a session low of $51.63 a barrel, a level which was last seen at the end of January this year.