Wall Street Boosts Exxon Forecasts As Refining Margins Soar

Wall Street analysts sharply increased their Exxon Mobil Corp second-quarter profit estimates on Tuesday, after the largest U.S. oil producer estimated that it earned $5 billion more from selling motor fuels than it did in the first quarter.

"This would be one of the strongest quarters in Exxon's history," Credit Suisse analyst Manav Gupta said in a note. "Both downstream and upstream came in better than expectations."

Oil and gas prices soared in the first half, with crude selling for more than $105 per barrel and U.S. pump prices for gasoline surging to about $5 per gallon.

On Friday, the producer signaled fuel, crude and natural gas sales could generate a record quarterly profit of more than $16 billion. The company posted first-quarter adjusted profit of $8.8 billion, excluding a Russia writedown.

Analysts raised the quarterly profit outlook to about $4.02 per share from $2.99 a share prior to the late Friday securities filing. Full-year profits could be $11.59 a share.

Exxon's earnings disclosure signals high second-quarter profits coming from other oil majors and for refiners, analysts said. U.S. lawmakers renewed calls for windfall profit taxes.

"The oil industry is about to steamroller the administration and massively increase buybacks," said Sankey Research analyst Paul Sankey.

Exxon shares were down about 4.2% to $84.84 in morning trading on Tuesday as oil prices slid $6 a barrel on worries a possible global recession could hurt demand. Brent traded down more than $6 per barrel and WTI down more than $5 per barrel.

The largest refiner among the oil majors, Exxon will be a key beneficiary of a tight refined products market, analysts said.

Stronger fuel margins suggest a quarterly operating profit of about $4.3 billion, higher than the average $3.1 billon annual profit across 2017 and 2019, according to Biraj Borkhataria, associate director of European Research at RBC Capital Markets.

"With many governments subsidizing oil products usage in the near term, we expect refining margins to improve further into the third quarter," Borkhataria said. "We think this could drive material earnings upgrades for Exxon."

Profits for Exxon and other oil majors led U.S. President Joe Biden last month to complain the industry was exploiting a global oil supply shortage to fatten profits. Exxon, he said, was making "more money than God" after posting its biggest quarterly profit in seven years.

Exxon has been using its extra profits to pay debt and also plans to buy back up to $30 billion of its shares through 2023, more than twice the previous guidance.

The company reacted to critics by saying it was investing more than any other U.S. producer to expand oil and natural gas production. The White House and environmental groups also criticized the company for sticking with fossil fuels and lagging other oil majors in the transition to cleaner energies.

The company borrowed cash during the pandemic and posted a historic $22.4 billion loss in 2020 to keep intact cash distribution to shareholders and sustain investments in oil and gas production.

"High energy prices are largely a result of underinvestment by many in the energy industry over the last several years and especially during the pandemic," Exxon' spokesperson Casey Norton said in a note on Friday.

Exxon has been divesting from assets in countries such as Russia and the United Kingdom to increase production in the Americas. In the Permian basin, the largest unconventional U.S. oil patch, it plans to boost production 25% this year to the equivalent of more than 550,000 barrels per day.

The company also said it continues to invest to further increase refining capacity.