The Dow Climbs Higher, but Chevron, Exxon Mobil Keep Falling

On Friday, the Dow Jones Industrials (DJINDICES: ^DJI  ) closed out the week on a positive note, gaining 63 points, and bringing its weekly advance to about 115 points. The broader market did even better, with the S&P 500 hitting a new record, and small-cap stocks rising more than 1%. But within the Dow Jones Industrials, energy giants Chevron (NYSE: CVX  ) and ExxonMobil (NYSE: XOM  ) fell for the second day in a row, missing out on the Dow's gains, and calling into question the bull thesis on the energy industry.


Operations in Russia. Source: ExxonMobil.

Exxon and Chevron can't blame their declines on the crude oil market, as prices for West Texas Intermediate climbed by about $0.60 per barrel today to rise above the $104 mark, hitting its highest levels in a month. Although a few energy analysts have projected that gasoline prices might finally start to fall back somewhat from their recent high levels, no one expects a huge move that would materially endanger the profit potential from the refineries that both Chevron and ExxonMobil have in their downstream operations.

Still, rising geopolitical tensions could play a part in the bearishness in the big-oil sector today. Tension in Ukraine is rising, with Russian President Vladimir Putin referring to the conflict as a civil war that could eventually have implications for Russian military action in the future. In particular, Exxon has made a huge investment in the waters of the Arctic Ocean off the Russian coast, and continued wrangling between Western nations and Russia over economic sanctions could threaten the viability of Exxon's partnership with Russian energy giant Rosneft. Given the difficulty that Exxon has had in keeping its production levels rising, taking away such a huge pool of resources could be devastating to the company. That said, Exxon extended its partnership with Rosneft today, doubling down on its commitment to Russia, and hoping that the Ukraine crisis will resolve itself favorably.

Source: Chevron.

Meanwhile, Chevron is looking to Argentina as a potential source for new resources, albeit with political issues of its own. Chevron identified Argentina's Vaca Muerta shale oil and gas area as a treasure trove of potential reserves, especially because unusual rock formations make recovering energy products from the area far easier than in other shale plays. Argentina's political situation has been difficult for oil companies ever since it nationalized YPF, its largest oil company, two years ago. But that hasn't held Chevron back from investing more in the area. As long as the Argentine government doesn't have any further nationalization plans in the works, the move could pay off for Chevron.

The energy companies in the Dow Jones Industrials have big challenges to overcome, but the opportunities they have are equally large. Even if energy stocks miss out on the Dow's gains for the near future, the long-term potential that their shares have could be worth the wait.

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  • Report this Comment On May 23, 2014, at 11:02 PM, mjillster wrote:

    If two days of trading "calls into question the bull's thesis on energy," I think the bulls thesis on energy needs some refinement. That seems pretty short-sighted.

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10/23/2014 4:32 PM
^DJI $16677.90 Up +216.58 +1.32%
DOW JONES INDUSTRI… CAPS Rating: No stars
CVX $116.19 Up +2.19 +1.92%
Chevron CAPS Rating: *****
XOM $94.11 Up +0.98 +1.05%
ExxonMobil Corp CAPS Rating: ****

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