Critical Thinking

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What’s going on?

Chevron posted pretty exceptional quarterly results on Friday, even if the US oil giant still isn’t able to live up to investors’ exacting standards.

What does this mean?

Oil and natural gas prices have regained their mojo over the past year, as demand for the fuels rode the coattails of a recovering economy. In fact, the average price of a barrel of oil almost doubled last quarter from the same time the year before, while natural gas prices in the US more than tripled. That’s given Chevron its va va voom back too: the company reported a $5.1 billion profit last quarter – a sharp turnaround from the near $700 million loss it made the same time in 2020, and all the more surprising considering it produced 5% less oil and gas. Still, with analysts anticipating a profit of around $6 billion from the company, investors – who sent Chevron’s stock to an all-time high last week – felt short-changed: they initially sent Chevron’s shares down 3%.

Why should I care?

For markets: Coffee’s for closers.

Every oil company is at the mercy of high expectations right now, with an index tracking some of the biggest producers having outperformed the US stock market by 24% this year. But since Chevron – the first of the Big Oils to report this earnings season – missed expectations, it doesn’t bode well for its rivals going forward. So steel yourself: we could be in for one disappointing update after another over the next few weeks.

Zooming out: America’s doublethink.

Let’s put this into perspective: US demand for energy is going strong, regardless of whether investors are happy. And there’s no better evidence of that than the wider US economy, with data out late last week showing that it grew by a faster-than-expected 1.7% last quarter versus the one before. That brings last year’s growth to 5.7% – the biggest yearly uptick since 1984.

Originally Posted January 28, 2022 – Critical Thinking

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