Virus Adds To Headwinds As Oil Giants Report Weak Results

US oil giants Exxon Mobil and Chevron and industrial heavyweight Caterpillar all released lackluster results Friday, reflecting weakness in commodity markets that likely will be exacerbated by the virus outbreak in China.

The results cover the quarter ending December 31, a period when uncertainty over US-China trade relations weighed on the global economy, but before the coronavirus emergency hit demand in China and raised worries of a broader slowdown.

With companies shuttering production and flights canceled, analysts said stronger links with China mean the impact of the this virus likely will cause a bigger impact than the SARS outbreak in 2003.

Exxon Mobil reported lower profits as anemic pricing for chemicals and refined products weighed on results, while rival Chevron ended 2019 with a hefty fourth-quarter loss after it slashed the value of its oil and gas assets by $10.4 billion.

Meanwhile, Caterpillar eked out a modest increase in earnings as cost-cutting measures offset the hit from lower revenues. But the company -- which sells machinery to the construction, resource and transportation industries -- offered a disappointing outlook that highlighted global economic uncertainty.

Shares of all three companies slumped Friday, weighing on the Dow, which ended with its biggest loss since August, dropping more than 600 points.

Oil prices have fallen about 15 percent in January as a jump in confirmed cases led to the World Health Organization on Thursday declaring the ailment a global emergency. Prices for copper and other industrial metals also tumbled.

US authorities followed suit on Friday, declaring a public health emergency and banning foreign nationals who have traveled to China from entering the country.

For the petroleum sector, the outbreak will hit demand for jet fuel and to a lesser degree gasoline and diesel, and probably will be more severe than the 2003 SARS outbreak because Chinese transport activity is "incomparably higher," the Wood Mackenzie consultancy said in a note.

"The ongoing coronavirus outbreak and subsequent large-scale quarantine measures are posing a major economic risk to China and beyond," according to the report, which projected Chinese oil demand could be reduced by 250,000 barrels a day.

Goldman Sachs noted that the virus has "already had a material impact on metals demand through the extension of the Chinese New Year holidays by one week," and agreed the impact could be more severe than 2003 because of greater transportation links.

Exxon Mobil executives did not discuss the virus during an earnings conference call, but alluded to generally weak demand for most petroleum-linked commodities.

Chief Executive Darren Woods described demand for many key products as "solid" but said profit margins were depressed by excess supply.

Although Woods suggested some investments might be delayed if the downturn is prolonged, he said the company would not cancel projects and defended the continued investments.

"We know demand will continue to grow, driven by rising population, (and) economic growth," Woods told analysts.

Exxon's fourth-quarter earnings came in at $5.7 billion, down 5.2 percent from the year-ago period on a 6.6 percent decline in revenues to $67.2 billion.

Profits were boosted by the $3.7 billion one-time gain from the sale of Exxon's interest in 20 oilfields to Norwegian company Var Energi.

Chevron also notched lower profits in refining, but the bigger hit was in the exploration and production business where a previously-announced move to cut the value of assets by more than $10 billion dragged results into the red.

The company reported a loss of $6.6 billion, compared with $3.7 billion in profits in the year-ago period. Revenues fell 14.2 percent to $36.4 billion.

At Caterpillar, fourth-quarter profits came in at $1.1 billion, up 4.9 percent from the year-ago period on an 8.4 percent fall in revenues to $13.1 billion.

Caterpillar reported lower sales in all three of its main business divisions, but Chief Executive Jim Umpleby said the higher profits during the period reflected that "strong cost control more than offset lower-than-expected end-user demand."

"We expect continued global economic uncertainty to pressure sales to users in 2020 and cause dealers to further reduce inventories," Umpleby said.

Caterpillar's 2020 forecast lagged analyst expectations as the company said it expects its construction business in China to be "flat to down" and that miners "remain cautious" on investments despite solid commodity prices.

Shares of Exxon fell 3.1 percent to $62.12, while Chevron dropped 3.8 percent to $106.40 and Caterpillar declined 3.0 percent to $131.35.