Exxon Mobil and Chevron Face Downward Refining Profits Amid Tariffs Threat
Exxon Mobil Corp. and Chevron Corp. have suffered significant setbacks in refining profits due to plummeting fuel margins, compounded by the potential impact of U.S. tariffs on primary oil suppliers Canada and Mexico.
Slumping Refining Profits
Exxon reported a 67% decrease in refining profits for 2024, while Chevron experienced an even steeper 72% decline. This decline is attributed to an influx of new oil supply and stagnant demand globally.
Tariffs Threat
The prospect of U.S. President Donald Trump imposing tariffs on Canadian and Mexican oil has further exacerbated concerns. Refineries in the U.S. Midwest and Gulf Coast rely heavily on these countries for crude imports. Tariffs would increase production costs for gasoline, diesel, and jet fuel.
Financial Impact
Exxon's full-year refining earnings dropped from $12.1 billion in 2023 to $4 billion in 2024. Chevron's global refineries earned just $1.7 billion last year, compared to $6.1 billion previously. Chevron's U.S. refineries faced particularly significant losses, totaling almost $350 million in the fourth quarter.
Industry Outlook
Analysts anticipate that tariffs on Canada and Mexico could reduce oil shipments by approximately 4.5 million barrels per day. Valero Energy Corp., the third-largest independent U.S. refiner, has warned of potential fuel production cuts if tariffs are implemented.
Overall Performance
Despite the refining challenges, Exxon and Chevron reported adjusted fourth-quarter earnings that exceeded analyst expectations. Exxon raised its capital spending to over $30 billion annually for the next five years, aiming to expand production. Chevron increased dividends by 5% while generating $4.4 billion in free cash flow.
Conclusion
The slumping refining profits and potential tariffs pose challenges for Exxon and Chevron. However, the companies' strong financial performance and long-term investment strategies suggest they are well-positioned to navigate these challenges.