Big Oil About to Flip

It's an admittedly overworked adage, especially in investing, but what goes up really does eventually come down. I expect that maxim to play out in spades for the integrated energy companies and refiners during the coming earnings season.

It's also the message from ConocoPhillips (NYSE: COP  ) , which has warned that its third-quarter refining margins will be nearly slashed in half from their June-quarter levels. At the same time, crude oil prices have moved up steadily throughout the year, thereby boosting upstream realizations. But with the seizure of its assets in Venezuela, pipeline damage in the U.K., and planned maintenance at some of its facilities, the company says that it produced about 180,000 fewer barrels in the most recent quarter than it did in the June period.

I expect Conoco to be one of many big integrated companies to reflect such trends. Beyond that, with refinery margins down nearly 50% in the quarter, such major refiners as Tesoro (NYSE: TSO  ) and Valero (NYSE: VLO  ) will likely report substantially reduced earnings, both sequentially and year over year.

You probably recall that the second quarter saw expanded refining margins boost Big Oil's downstream profits, largely saving the day amid slightly lower year-over-year crude prices. That obviously won't happen in the third quarter. Despite crude prices now approaching $80 a barrel, firms like ExxonMobil (NYSE: XOM  ) and Chevron (NYSE: CVX  ) will probably join Conoco in reporting lower earnings across the board.

What does all this mean for investments in the energy group, whose earnings season will kick off on Oct. 19 with oilfield services leader Schlumberger (NYSE: SLB  ) ? Very little, actually. While market conditions in energy can change quickly in just a few months, you're not investing for a quarter -- or at least, you shouldn't be.

I remain convinced that we're at or near the point where global crude oil demand will begin to outstrip supply, a gap that's likely to widen substantially as time marches on. You should be investing for that trend. It also makes me advise my Foolish friends that, especially with crude prices near record nominal levels, the producers mentioned above will become even more attractive on any sort of price pullback.

For related Foolishness:

Read/Post Comments (0) | Recommend This Article (6)

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: 537996, ~/Articles/ArticleHandler.aspx, 10/21/2016 10:09:22 PM

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 53 minutes ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

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

10/21/2016 4:00 PM
COP $41.54 Up +0.05 +0.12%
ConocoPhillips CAPS Rating: ****
CVX $101.30 Down -0.57 -0.56%
Chevron CAPS Rating: ****
SLB $80.47 Down -2.52 -3.04%
Schlumberger CAPS Rating: ****
TSO $81.80 Up +0.95 +1.18%
Tesoro CAPS Rating: ***
XOM $86.62 Down -0.59 -0.68%
ExxonMobil CAPS Rating: ****