Investors won't be expecting fireworks when ExxonMobil (XOM) and Chevron (CVX) report fourth quarter earnings on Friday, the first of the US oil majors.
New data from FactSet shows that out of all 11 S&P 500 sectors, Energy is expected to see the largest year-over-year earnings decline for Q4 2023, down by 31.4%, compared to the benchmark's expected earnings growth rate of 1.5%.
"Profits are down year over year for sure, but I would not characterize them as squeezed — they are healthy but just down from a period of extraordinary earnings in 2022," Peter McNally, global head of analysts at Third Bridge, told Yahoo Finance.
Lower year-over-year oil prices are a major reason for the annualized decrease in earnings. West Texas Intermediate (CL=F) crude prices last quarter averaged $78.53 per barrel versus $82.64 per barrel during the same period in 2022.
For 2024, Wall Street analysts are expecting crude prices to stay range-bound. Goldman Sachs, for example, expects Brent (BZ=F) to trade between $70 and $90 per barrel during the year, with a yearly average of $81.
“While we have adjusted the range, we still look for range-bound prices and only moderate price volatility in 2024. Elevated spare capacity to handle tightening shocks should limit upside price moves,” Goldman Sachs analysts wrote in a recent note.
Looking ahead, Wall Street is predicting inconsistent growth for the Energy sector in 2024, including a decline of 24% this quarter. Profits are expected to grow by 7.4% in the second quarter and then decline 7.4% in Q3. During the fourth quarter they’re expected to grow again.
It will be tough to compete with the energy industry's blockbuster 2022 results. Analysts expect ExxonMobil (XOM) to post adjusted fourth quarter profit of $2.22 per share, down 34% on a year-over-year basis. Revenue is estimated to have declined by almost 10%.
Wall Street also anticipates Chevron (CVX) will post fourth quarter adjusted earnings of $3.22 per share, which represents a 21% year-over-year decline. Revenue is expected to have fallen by 18% during the period.
But analysts will be more interested in commentary regarding the big major's recent acquisitions and what that will mean for their bottom line, rather than backwards-looking results.
"Exxon's proposed deal for Pioneer Natural Resources (PXD) is a major step up in the Permian Basin," said Third Bridge's McNally.
"For Chevron, our investor clients are more interested in what the company sees in South America," he added.
In October, the company announced it would acquire gas explorer and producer Hess (HES), giving the energy giant 30% ownership of more than 11 billion barrels-equivalent of recoverable resources in Guyana. The small South American country next to Venezuela is on track to produce than 1 million barrels per day by 2026.
"Border tensions with Venezuela have been on the rise, but Chevron is in a unique position as the first US major allowed back into Venezuela" amid eased US sanctions, said McNally.
Ines is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre
