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Chevron Corp. (NYSE: CVX) reported third quarter earnings today (Friday) that reflected the effect of lower oil and natural gas prices – but those prices will change in the aftermath of Hurricane Sandy.
Chevron's Q3 earnings showed revenue of $56 billion compared to $61 billion in the third quarter of 2011. Net earnings fell to $5.3 billion ($2.69 per fully diluted share) compared to $7.8 billion ($3.92 per fully diluted share) over the same period. Revenue and earnings both came in below average analyst expectations.
Chevron management blamed the decline on lower crude oil and natural gas prices in the U.S., lower international crude oil prices and on lower production due to depletion, planned maintenance and weather-related shut-ins.
Chevron (NYSE: CVX) Earnings
Lower prices were the biggest factors on Chevron's Q3 earnings.
"This quarter's earnings were solid, but off from their near record level of a year ago," said Chairman and CEO John Watson. "Crude oil prices were down and we had a heavy period of planned oil field maintenance which temporarily reduced oil and gas production in several locations. Foreign currency movements also hurt our results this quarter, while they benefited the year-ago period."
Chevron's international upstream operations reported an average crude oil price of $98 per barrel in the third quarter of 2012 compared to $103 per barrel a year earlier. Natural gas prices rose from $5.50 per thousand cubic feet in the third quarter of 2011 to $6.03 per thousand cubic feet this year.
Downstream operations were affected by lower volume due, in part, to a fire at Chevron's San Francisco area refinery, and lower marketing margins on refined products.
Share prices for most major oil companies are weaker in New York Friday, partly in reaction to Chevron's earnings miss and partly due to a 2% decline in the price of crude oil on NYMEX.
Hurricane Sandy and Oil Prices
According to Bloomberg News, crude oil prices are weaker because Hurricane Sandy cut power to two refineries in New Jersey, taking them out of production, which may lead to a rise in crude oil inventories.
Money Morning Global Energy Strategist Dr. Kent Moors explained this in his Oil & Energy Investor newsletter on Wednesday, "When a major storm is approaching, it is not only production and refining that is shut down. It is also storage facilities."
"With no place to put additional volume (since the wholesale network is also affected) and no way to manage the transit of that volume, prices decline…" Moors said.
Now that Sandy has passed and the cleanup is under way, crude oil remains weak but gasoline and diesel prices are rising. There are long lines of motorists waiting to buy gasoline in New Jersey and throughout the New York City region.
This has certainly been the case in my small, rural town in upstate New York, about 100 miles from midtown Manhattan. We have seen motorists from areas closer to New York City driving here to purchase gasoline because there is nothing available in the more densely populated suburbs.
Dr. Moors continues, "As the situation obliges refineries to shut down…cuts in supply will temporarily boost prices beyond the level where market factors would place them. That remains an issue until refineries are back on line and distribution returns to normal."
By the time power is restored to the New Jersey refineries and to most of the gas stations in the New York/New Jersey area, the presidential election will be over. Crude oil prices will once again fluctuate according to economic fundamentals and that should signal an improvement in the prospects for Chevron (NYSE: CVX) and the other oil majors.
CVX was down more than 3% to $107.83 nearing market close Friday.
Related Articles and News:
- Money Morning:
Why Oil Prices Can't (and Won't) Collapse
- Money Morning:
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- Oil & Energy Investor:
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- Bloomberg News:
Oil Falls on Speculation Supplies Will Rise After Sandy
- Bloomberg News:
Chevron Profit Tumbles as Oil Output Falls, Prices Tank