Exxon Mobil (NYSE:XOM) is set to release its earnings on July 26, reporting on a quarter that saw a sharp drop in oil as well as U.S. natural gas prices. We expect the company to report a drop in its sequential upstream earnings because of low realizations from the sale of natural gas in the U.S. and because of the fall in global oil prices. Overall, results may be tempered down by an increase in downstream margins. Refining and marketing margins are set to improve with the drop in crude oil prices. We also expect higher earnings from the company’s chemicals division.
We have a $93 price estimate for Exxon Mobil, which is at a 10% premium to its current market price.
Gas price impact
Natural gas prices in the U.S. touched their lowest levels in a decade in the last quarter after a mild winter exacerbated the oversupply situation, stroking fears that the U.S. may run out of storage in 2012. As the largest natural gas producer in the U.S., Exxon is particularly hit by the drop in prices. CEO Rex Tillerson has admitted that the company was strained by the situation in the natural gas markets. Exxon has also said that it was looking at options to export natural gas from the U.S. to international markets.
Toward the end of the quarter, the market also witnessed a drop in oil prices because of weak economic news from Europe and higher production from Saudi Arabia. Lower commodity prices are expected to eat into Exxon’s upstream earnings.
We expect the lower oil prices to result in higher margins in the downstream and chemicals segment. Refining margin indicators have seen a significant rise in Q2. Marketing margins are also expected to see strong growth in the period. Lower prices stroke higher end user demand and benefit the downstream operations of vertically integrated oil majors.
- Exxon Admits Strain From Low U.S. Natural Gas Prices (trefis.com)
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- Exxon Starts Pumping Angolan Crude With $94 In Sight (trefis.com)