The challenges facing Big Oil showed up loud and clear this morning when Chevron (NYSE:CVX) reported earnings that fell well short of expectations. Fourth-quarter revenue dropped 7.3% to $56.2 billion and net income was down 32% to $4.93 billion, or $2.57 per share. Earnings hit estimates from Wall Street but revenue was way short of the $64.9 billion analysts expected.  

Pressure came from across the business. Exploration and production earnings were down 29%, hurt by rising costs and falling oil prices. What's concerning is that low margins in exploration didn't translate to higher margins downstream, which saw a 58% drop in profit.

Oil companies are stuck between a rock and a hard place with exploration costs rising and the price of gasoline not rising at the same pace. That puts pressure on exploration or refining profits, depending on where the price of oil is in any given quarter. This quarter, conditions were bad enough to sink both upstream and downstream profits for Chevron.

Outside of a sharp rise in the price of gasoline, Chevron and other big oil companies are in for steadily declining profits long term. The developed world is using less oil than it did a decade ago and isn't willing to pay for gasoline the way it once was. This is still a dominant energy player but its dominance will slowly fade with time.