The Dow Jones Industrials (^DJI 0.56%) continued to climb Tuesday morning, albeit at a much slower pace than yesterday's triple-digit gain. As of 12:30 p.m. EDT, the Dow was up 21 points, as investors looked beyond what at first glance appeared to be a disappointing retail sales number, choosing to focus on the fact that the figure grew at all in April after a big bounce the previous month. Chevron (CVX 0.96%) and ExxonMobil (XOM 1.63%) were among the Dow's winners early on, amid some interesting news that could change the dynamics of the domestic oil market dramatically.
In the energy futures markets, domestic crude oil climbed about two-thirds of a percent to move above $101 per barrel. Energy Secretary Ernest Moniz said today the U.S. would consider making it easier for domestic producers to export crude oil. In particular, Moniz noted that some of the oil coming from unconventional production sites in the U.S. isn't well suited for domestic refining, as many refineries are configured to refine heavier crude from foreign sources rather than the light sweet crude produced domestically. All told, the net impact on Chevron and ExxonMobil from such a move would be mixed, as those companies produce massive amounts of oil internationally. Presumably, in a free-market situation, domestic and international crude oil prices would equalize, reducing the amount Exxon and Chevron would receive from foreign sales while potentially raising the value of domestic oil. In addition, Chevron's and Exxon's downstream segments would get less of an advantage from cheaper sources of domestic oil, potentially reducing profits there.
Macroeconomic factors weren't the only thing moving Chevron and ExxonMobil today. Chevron's 0.4% gain came despite some legal issues that pose minor problems for the oil giant. In the U.S., the Environmental Protection Agency said today that Chevron would settle with federal authorities by paying $875,000 in connection with two oil spills in Utah over the past four years. Chevron had already paid the state of Utah a larger $5.35 million settlement. Meanwhile, in Nigeria, a court ruled that the nation's Federal High Court would have jurisdiction to hear a case concerning a sale of Chevron assets, extending a dispute that Chevron had hoped would be resolved quickly with a dismissal of the case. The sale price totaled more than $1 billion, but Chevron sought to look at buyers beyond the top bidder for the properties, which include land-based areas in Nigeria. Given the importance of oil in economically challenged Africa, the dispute has substantial implications for Chevron, as well as ExxonMobil and other international oil giants operating in the region.
Still, the biggest issue for ExxonMobil and Chevron is how well they can keep production growing. ExxonMobil in particular faces the challenge of a huge operation, and with ongoing geopolitical risk in one of its biggest prospective growth opportunities in Russia, the company can ill-afford bad news on the Ukraine front. More generally, though, the opening of crude oil exports could drive domestic production higher, and that in turn could create new opportunities for Chevron and ExxonMobil to reap bigger benefits from their operations. For the Dow Jones Industrials, keeping energy stocks moving higher is a key element of sustaining the broader bull market.
