Exxon Mobil and Chevron: On Their Way to Full Recovery

In recent weeks, we have often raised questions about the transformation of economic realities associated with the impending recovery of the global economy from the pandemic. One of the most talked about beneficiary sectors is oil and gas. Only today, in the wake of the upcoming OPEC+ meeting in Vienna that is expected to start lifting output cuts, Brent crude oil is trading over a half-percent higher at around $71/bbl.

Let's talk today about the U.S.’s two biggest oil producers, Exxon Mobil (XOM) for which last year was "the most difficult one in almost half a century" and it's rival Chevron (CVX).

Exxon Mobil Corporation (XOM) shares closed up 3.62% at $ 60.46 yesterday, following a record travel and air travel traffic over the long US Memorial Day weekend. Despite a steady upsurge in investor interest in the electric vehicle segment, gasoline-powered cars are still the most commonly used mode of transport, and airlines, for example, are completely dependent on fossil fuels. Between May 21 and 28, the Transportation and Security Administration reported that a total of 7.11 million people took to the skies, the highest number of people passing through airport checkpoints every day since the pandemic began.

Options traders of Exxon have apparently begun to pile up bets on rising fuel prices and are betting on the rise in Exxon shares by an amount close to $2.4 million, which is quite a lot by the standards of options trading.

There is a so-called "sweep order", when option traders collect enough blocks of shares from various exchanges, and this indicates that traders want to very quickly "build their positions", and this is a very good sign for the companies as well as for the sector as a whole.

These types of call options are usually placed not by retail but by institutional investors, which is also very important from the point of view of forming a short-term investment strategy. At this stage, such predictive observations can be extremely useful, as they indicate the directions of the so-called "smart money".

In a world suffering from pandemic shutdowns, Chevron lost $5.5 billion in 2020, while Exxon suffered the greatest loss in the company's history: $22.4 billion. Now that Covid restrictions are being lifted, there are reasons to believe the worst is over. Both companies provided Q1 results for FY 2021 on April 30. Following a mind boggling $20.1 billion loss in Q4, Exxon reported an upbeat quarter in terms of both revenue and EPS and also improved their guidance looking forward. The company's free cash flow of $6.9 billion derived from cash flow from operations of $9.26 billion allowed the company to reduce debt by $4 billion. Oil-equivalent production rose 3% QoQ.

In its turn, CVX posted revenue of $32.03 billion and net income of $1.377 billion; however, both key figures fell short of expectations, but largely due to a one-off non-recurring factor, the impact of a winter storm in Texas. Also, the company's oil-equivalent production dropped 4% YoY. Both companies claim free cash flow will be positive provided crude prices remain over $50 a barrel.

All in all, we believe that both oil majors are on their way to full recovery, albeit at a different pace. Exxon looks somewhat healthier in terms of its revenues and cash flows than Chevron, but not by a wide margin.