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Strong Earnings From Exxon And Chevron Driven By Big Gas, Not Big Oil


According to the financial media “Big Oil is back” after today’s stronger-than-expected earnings reports from Exxon Mobil and Chevron. Well, if you’ve been reading my Forbes columns, you would know that XOM and CVX never left, but to say today’s results were powered by “Big Oil” is a misnomer. In fact, those results were really driven by the long-term–and I believe sustainable–increase in the price of natural gas.

As of this writing, West Texas Intermediate crude prices are hovering just below $50/barrel.  I could go on a very long digression and attempt to derive a fair price for oil, but I won’t.  Oil prices are range bound because U.S. shale producers have increased their place of production dramatically  (today’s figures from Baker Hughes showed the U.S. oil rig count up for the 15th consecutive week) while OPEC has maintained its production cuts.

One could bloviate all day about oil prices but quite simply those two supply factors are offsetting each other. Demand remains strong, especially from China, but the dueling shale/OPEC impacts on production are not temporary in my opinion. So, I think we’re going to stay near $50/barrel through the summer, and in that environment one might think to avoid shares of Exxon and Chevron.

Written by Jim Collins

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