Exxon under pressure

The firm will reveal its third-quarter numbers on 30 October, and the drop in oil prices has hurt its profitability. 

Exxon logo
Source: Bloomberg

The company is the largest listed energy oil company in the world, but it still has been impacted by the collapse in the price of oil. In the second-quarter, group earnings dropped by more than half, which included a small increase in oil and gas production. There are no surprises that the upstream business suffered greatly, and the operation in the US swung to a loss from a profit in excess of $1 billion in the same period last year. Drilling costs in the US rose as more complicated techniques were used, but the upstream unit outside of the US also suffered a major drop in profits.

On the bright side, the downstream business enjoyed a doubling of profits during the latest quarter. It is of some benefit to Exxon that the downstream business cushions the blow when oil prices fall, but the division isn’t big enough to fully offset the dramatic drop in the price of oil. As proactive as it is to conserve your cash while oil is low, investors will be reluctant to go long Exxon while the energy market is showing no signs of a recovery.

When Exxon announces its third-quarter figures, the market is expecting revenue of $59.47 billion and earnings per share of 89 cents, which compares with the second-quarter revenue and EPS of $74 billion and $1 respectively. The oil titan will reveal its full-year results in February 2016, and dealers are anticipating revenue of $262 billion and EPS of $3.89, and these estimates equate to a 36% fall in revenue and a 95% drop in EPS.

Investment banks are bullish on Exxon, and out of the 29 ratings, eight are buys, 16 are holds, and five are sells. The average target price is $81.67, which is fractionally below the current price. Equity analysts are more bullish on Chevron, and out of the 30 recommendations, 12 are buys, 16 are holds, and two are sells. The average target price is $93.11, which is 4.1% above the current price.

The number of short positions on Exxon has jumped by 55% since the second-quarter number were released, and the short interest on the stock is at its highest level in the past 12 months. 

Exxon’s share price has been falling since July 2014, and the trend is pointing to more losses. The first level to watch will be $75.80 and $71.50 will be the next region of support. The share price has been rising since late September and if the momentum is kept up $84 will be a stumbling block, and a move through it will bring the May high of $90.08 into sight. 

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