XOM
Exxon shares jumped 2% in morning trading after the company said in a filing Tuesday evening that earnings could be higher than analysts’ projections. Furthermore, oil prices continued to rise due to a tight market and indications that OPEC+ could be readying a 2 million barrels a day cut. Exxon is the largest integrated oil and gas company in the United States. The company’s stock is up around 58.5% on a year-to-date basis as West Texas Crude Oil is up 14.8% in the same period, while Brent Crude is up 18.1%.
Energy is also currently the top performing sector in the S&P 500 Index for the year. While the benchmark is down 21.7% for 2022, the energy sector is up 44.5%. Russia’s invasion of Ukraine has thrown world commodity markets into turmoil, with surging energy prices benefitting the largest producers globally. Exxon is the fourth largest global producer of oil. Along with being the largest U.S. oil producer, Exxon also benefits from having one of the biggest refining operations in the country.
The company has also benefited from higher margins in its refining business this year versus last, even though those margins have declined in the past three months. Exxon said that refining margins were $2.9 billion lower in the third quarter relative to the second quarter. Crack spreads, defined as the spread between the underlying price of crude oil and refined products such as diesel and gasoline, have surged during the course of this year due to limited refining capacity in the U.S.
Buoyant natural gas prices have been the backbone of the outperformance in Exxon this year, with the Henry Hub natural gas price up over 85% since December 31st. Exxon also produced roughly 8.5 billion cubic feet of natural gas in 2021. With Henry Hub Natural Gas prices hitting a 14-year year high recently, the company would also benefit from being one of the lowest cost producers of the commodity in the world. Liquified Natural Gas (LNG) prices are also through the roof, as Western Europe seeks to curtail its dependence on Russian gas.
The company expects higher volumes going forward with volume growth from the Permian Basin and Guyana. It also expects favorable lag timing in LNG pricing and said that the higher prices resulted in upstream earnings that were $2.2 billion higher in the third quarter relative to the second quarter. All of the above points to the company reporting an earnings per share number that would be higher than the average analyst estimate when Exxon releases third quarter earnings on October 28th.
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