Chevron Corporation reported lower-than-expected fourth-quarter earnings on Friday, primarily due to significantly weaker refining margins that pushed its downstream business into a loss for the first time since 2020. This downturn reflects a broader trend in the energy sector, as fuel demand and economic activity softened in key markets.
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CEO Mike Wirth acknowledged in an interview with Reuters that the substantial fuel margins experienced after the pandemic have diminished and are projected to continue declining throughout 2024. This forecast underscores the challenges faced by refining businesses amid shifting market dynamics.
Chevron’s adjusted earnings per share for the fourth quarter were $2.06, falling short of the Wall Street consensus estimate of $2.11. This miss led to a decline in Chevron’s share price, dropping over 4% to a three-week low of $148.68. The company’s performance highlights the impact of fluctuating fuel demand and economic conditions on profitability.
The decline in fuel sales profitability affected the entire industry in the past year, driven by weaker demand and economic slowdowns in the United States and China, the world’s two largest oil consumers. Chevron’s downstream segment reported a loss of $248 million in the fourth quarter of 2024, a stark contrast to the $1.15 billion profit recorded in the same period of the previous year.
Refining Margins and Demand Challenges
Reduced refining margins in both U.S. and international markets, coupled with weak jet fuel demand, significantly impacted Chevron’s domestic refining operations. The company reported a 3% year-over-year decline in U.S. fuel sales, further emphasizing the challenges in the refining sector. Wirth characterized the quarter as one where “everything went one way and it was negative” for the refining business.
While Chevron’s oil and gas exploration and production profit increased to $4.3 billion from $1.59 billion a year earlier (a figure that included charges), the U.S. business segment fell short of consensus estimates, according to analysts at RBC. They described Chevron’s overall results as “relatively soft” and anticipated that the market would view them as “disappointing,” given the company’s recent strong performance compared to its peers. Exxon Mobil, the largest U.S. oil producer, also faced headwinds from weak refining margins and lower oil prices, but managed to exceed analyst expectations.
Record Permian Production Amidst Challenges
Despite the difficulties in refining, Chevron maintained relatively stable oil production in the fourth quarter, reaching 3.35 million barrels of oil equivalent per day (boepd), compared to 3.39 million boepd in the same period last year. Notably, production from the Permian Basin in Texas and New Mexico saw a substantial 14% year-over-year increase, reaching a record 992,000 boepd. This achievement brings Chevron closer to its goal of producing 1 million boepd in the prolific U.S. oilfield this year.
Conclusion: Navigating a Changing Energy Landscape
Chevron’s fourth-quarter results underscore the complex and evolving dynamics of the energy market. While the company achieved record production in the Permian Basin, challenges in the refining sector significantly impacted overall profitability. The decline in refining margins and weakening fuel demand pose ongoing challenges for Chevron and the broader industry. As the energy landscape continues to shift, Chevron’s ability to adapt and innovate will be crucial for sustained success.
