Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Why Haven't ExxonMobil and Chevron Crashed?

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

The Dow Jones Industrial Average  (DJINDICES: ^DJI  ) has soared to new record highs recently, and one of the most surprising things about this run is that the index's two energy stocks, ExxonMobil (NYSE: XOM  ) and Chevron (NYSE: CVX  ) , have played a big role in the rally. Given that West Texas Intermediate crude prices have fallen below $95 per barrel and are now at their lowest levels in more than four months, some investors are confused as to why Exxon and Chevron have risen, rather than plunged, in response.

A number of factors play into Exxon's and Chevron's relative success. Perhaps most important is the fact that both companies rely as much on the volume of oil and natural gas they produce as on the prices they get for selling them. Exxon pleased investors with its earnings report late last month because of its production growth, even though overall revenue actually dropped slightly. Chevron has driven its production levels upward as well, helping the oil giant boost revenue slightly in the third quarter.

Also, crude oil prices on world markets haven't fallen as far as domestic crude. Brent crude remains well above $100 per barrel, although it too is trading at its lowest levels since August -- below $105. The resulting spreads reemphasize just how much U.S. production has increased recently, as the U.S. prohibition against exporting crude oil prevents market forces from driving prices toward an equilibrium point.

Both Exxon and Chevron are integrated oil companies, so their fortunes aren't entirely tied to the price of oil. During the third quarter, narrowing spreads between Brent and WTI crude hurt margins in their respective refinery operations, as downstream profitability benefits when refineries are able to buy feedstock at discounted levels. The reemergence of the Brent-WTI spread more recently has lifted refinery stocks dramatically, and it could also help boost earnings in Exxon and Chevron's fourth-quarter reports.

Finally, you should also bear in mind is that energy-market participants have expected falling prices for a long time. Looking at WTI oil futures now, prices are expected to drop gradually in the coming years, to $85 by 2016 and $80 by 2019. As a result, even as prices have fallen over the past few months, they're nevertheless staying above the levels anticipated in coming years.

Add all these factors up, and you can understand why bullish investors haven't given up on Exxon or Chevron. If oil prices stay low in the long run, they'll eventually affect the two companies, but for now, investors haven't abandoned hope for their prospects.

Your best oil play
Exxon and Chevron are just the largest examples of companies that have seen the record levels of oil and natural gas production revolutionize their business models. To help you find your best investing prospects in the space, the Motley Fool is offering a comprehensive look at three energy companies set to soar during this transformation in the energy industry. To learn which three companies are spreading their wings, check out the special free report, "3 Stocks for the American Energy Bonanza." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free.

Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2719345, ~/Articles/ArticleHandler.aspx, 9/30/2016 10:07:51 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,240.97 97.52 0.54%
S&P 500 2,159.82 8.69 0.40%
NASD 5,285.25 16.10 0.31%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/30/2016 9:48 AM
^DJI $18240.97 Up +97.52 +0.54%
CVX $101.38 Up +0.11 +0.11%
Chevron CAPS Rating: ****
XOM $86.76 Up +0.30 +0.35%
ExxonMobil CAPS Rating: ****