Energy's Up But Are Earnings Already Factored In to Share Prices

Brittney Barrett  |

An approximately 26 percent increase in crude oil prices is expected to have improved second quarter profits for major petroleum producers. In anticipation of more impressive earnings updates for Exxon Mobil, Chevron and ConocoPhillips expected in the coming weeks, shares have been climbing from recent weakness.

The NYSE Arca Oil Index is higher by 5.3 percent over the past month as investors look forward to stronger profits, higher oil prices and the eventual resolution to the Greek debt crisis and the stateside deficit squabbles. That said, the recent rally is not expected to continue or mimic the sky-high per barrel pricing several months ago. Several banks have issued a neutral rating on oil for the remainder of the year as few catalysts have presented themselves as operative for higher oil prices.

Even if oil were to move higher, companies could see resistance and waning demand from their customer base, ultimately pushing profits lower. In the months of the final quarter, oil traded as high as $115 with an average of $100 a barrel, before sliding back down to $90 toward the end of the quarter. The average price being above typical levels but not so high as to alienate customers contributed to what is expected to be the higher second quarter results.

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For ConocoPhillips (COP), analyst expectations come in around $2.21 a share, or $3.11 billion. The numbers are lower than last year’s figures of $4.16 billion of $2.77 a share but eliminating one-time items from that period, the earnings are anticipating to rise around 24 percent. Stocks prices have been higher since the company announced its decision to spin off its refining unit to shareholders.

Exxon Mobil Corp. (XOM) has seen a similarly strong trajectory in advance of earnings. The company, expected to release a profit update on July 28th is expected to report a massive 48 percent profit rise from the same period a year ago.  Current figure forecasts are in the ballpark of $11.2 billion, or $2.29 a share, making it, at least in speculation among the energy goliaths most profitable quarters in recent history.

Chevron Corp. (CVX) is also assumed to have had a blowout quarter as a result of higher crude prices and refining margins, with profits up an estimate 32.7 percent to $3.50 a share.

Elsewhere in the Sector today, Schlumberger Ltd. (SLB), made major gains in the aftermath of the announcement that Andrew Gould, the company’s current CEO will retire from the company at the start of August. Gould, who will remain on as chairman will be replaced by the company’s current COO, Paul Kibsgaard.

Investors approved, as evidence by the advance of the stock today, though it could also be attributed to more optimism surrounding the succession plans at the largest oil-services firm by market cap. Halliburton (HAL) and Valero Energy Corp. (VLO) were also higher.

Sunoco Inc.’s (SUN) decision to spin off Suncoke Energy Inc. (SXC), saw the new entitity gain significantly in its first day.

Smaller companies for the day also made gains, including Carrizo Oil & Gas (CRZO) also benefited from the possibility of stronger earnings. The U.S. oil and gas company has been gaining more visibility since Jim Cramer pronounced the stock a buy on July 13.

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