Oil Giants’ Soaring Profits Clash With Waning Momentum in Stocks

Full Post
Oil and gas companies are expected to report enormous profit growth as the war in Iran drives energy prices higher, but their stocks continue to underperform because investors question whether those gains will last. Political sensitivity and uncertainty around oil prices may also make companies reluctant to immediately increase dividends or stock buybacks.

US oil and gas companies are set for a blockbuster earnings season, helped by energy prices that have been soaring as the war in Iran persists. Yet, that may still fail to pull the stocks out of their rut.

Energy companies are estimated to report a 129% jump in second-quarter earnings from a year ago, according to data compiled by Bloomberg Intelligence. That would be the biggest such expansion among all sectors in the S&P 500 Index.

Meanwhile, energy stocks have risen about 5.4% since the beginning of the Iran conflict, lagging the US equity benchmark’s 6.4% jump over the same period while Brent crude futures advanced 24%.

Since it’s difficult to ascertain how long a geopolitically driven oil price escalation will last, “the market has tended to discount the sustainability of high prices and you see that in the way it is treating the oil and gas companies,” Dan Pickering, chief investment officer at Pickering Energy Partners, said in an interview.

The uncertainty surrounding the war in the Middle East has whipsawed energy stocks since late February, depending on whether there’s an escalation in the conflict that pushes oil prices higher or a ceasefire, as investors try to make sense of the daily headlines. XLE, an exchange-traded fund that tracks the sector, shed $2.5 billion in the second quarter and has posted outflows for the month through July 24.

Chevron Corp. and ExxonMobil Holdings Corp. will kick off earnings for the integrated oil companies on Friday. Chevron is expected to see a 219% year-over-year growth in profit in the second quarter, and ExxonMobil is estimated to report a 116% gain. Shares of Chevron and Exxon are up about 3% since the war began in late February.

Next week, results are due from ConocoPhillips, EOG Resources Inc., Occidental Petroleum Corp. and Diamondback Energy Inc., among other large US energy stocks.

So far, even some of the companies that have posted second-quarter earnings that exceeded estimates, like SLB Ltd. and peer Baker Hughes Co., are still down since the Iran war started in late February. Refiner HF Sinclair Corp., meanwhile, has bucked that trend, with earnings that surpassed expectations and an 80% jump in share prices over that period.

Profit and Cash Gains

Investors will be focused on how major energy firms like Chevron and ExxonMobil plan to spend their money, given that their free cash flow estimates for the second quarter show at least triple-digit growth.

“We’d love to see business continue as usual and if they get a little bit of a windfall, can they buy back stock if it’s a reasonable price, can they increase their dividend?” Brian Laks, chief investment officer at Old West Investment Management, said in an interview.

But increased shareholder returns may not materialize just yet, according to TD Cowen analyst Jason Gabelman.

“Given the potential transient nature of the commodity strength, I think they may be a bit hesitant to raise the buyback just yet,” Gabelman said in an interview. “There’s also of course political sensitivities to that. You don’t want to make it seem like higher oil prices, which tend to be politicized, are resulting in windfall earnings.”

Canadian major energy producers are also expected to see profit growth when they report earnings in August. Suncor Energy Inc. is expected to see a 323% growth in earnings, while Canadian Natural Resources Ltd. is expected to see a 181% gain. The firms benefited from increased demand for oil outside of the Middle East, with Suncor rising 20% since late February while Canadian Natural Resources is up 9%.

For now, estimates show that major US oil companies are expected to continue to see earnings growth in the third quarter. Some longer-term investors in the energy sector see a fundamental case for the stocks regardless of how the Middle East conflict impacts companies in the sector.

“We don’t view it as ‘you can only like these things because there’s a war and we get this temporary boost,’” Old West’s Laks said. “We liked them when oil was at $60 or $70, and if you get these temporary disruptions and it’s at $90, well that’s just a bonus.”

Read now
Oil Giants’ Soaring Profits Clash With Waning Momentum in Stocks

Timeframe

Add to calendar

Location

No items found.

Sponsored

PEP Library

Explore Our Latest Insights

Visit page
Visit Library post
Private E&Ps rethink oil and gas M&A as drilling inventory tightens, weighing asset sales, consolidation and development amid volatile prices.
Visit page
Visit Library post
The five global oil majors added $67 billion to their huge cash piles in the third quarter. Don’t expect a spending spree anytime soon.
Visit page
Visit Library post
Earnings Call Insights: Innovex International, Inc. (INVX) Q3 2026
Visit page
Visit Library post
Earnings Call Insights: Forum Energy Technologies (FET) Q3 2026
Visit page
Visit Library post
EQT’s $12.8 billion acquisition of Range Resources would create the nation’s top natural gas producer as data center and LNG export demand rises.
Visit page
Visit Library post
Dan Pickering talks with CNBC’s Brian Sullivan about oil prices, energy deals, Venezuela’s production outlook and signs of slowing fuel demand.
Visit page
Visit Library post
Brent crude settles near $109 as conflicting reports on US-Iran talks shake oil markets amid tanker attacks and ongoing tensions in the Strait of Hormuz.
Visit page
Visit Library post
Rising Houthi attacks on Saudi Arabia and renewed Iranian targeting of shipping raise fears of October escalation around the Strait of Hormuz.
Visit page
Visit Library post
Freight rates for moving U.S. oil to Asia have soared from $3 to $6 per barrel before the war in Iran to around $38 per barrel today.
Visit page
Visit Library post
The World Moves Fast.
Visit page
Visit Library post
Trump suggests Ukraine replace Zelensky as the leaders clash over a US-Russia diesel deal that Kyiv warns could prolong the war.
Visit page
Visit Library post
Oil Prices rise after attacks on Saudi Aramco sites
Visit page
Visit Library post
Analysts say the Iran war could drag on through November’s midterms as stalled peace talks and Tehran’s push for leverage prolong the conflict.
Visit page
Visit Library post
More tankers are moving through the Strait of Hormuz as shippers gain confidence, but the global supply of oil is still below demand.
Visit page
Visit Library post
An export ban likely would slow U.S. refining and eventually push up all fuel prices, including gasoline, jet fuel, and diesel.
Ready to get started?
Contact our specialized teams at PEP for more information.