Shell Outperforms, But What's Next for US Oil Majors

Shell's earnings surprised to the upside despite lower oil prices. Could this be a sign for major US oil companies reporting on Friday?

Shell Boosts Shareholder Returns

Despite reporting a 30% drop in profits last year, Shell decided to boost its dividend by 4% and extend its share repurchase programme by a further $3.5 billion in the first quarter. Earnings of $7.3 billion exceeded analyst expectations of $6.0 billion, and the stock price opened higher, helping the FTSE index turn positive while most European indices opened lower. The company is now adapting to stable gas prices after higher earnings from natural gas last year due to the conflict in Ukraine.

Shell's strategy of focusing on LNG and high-margin fossil fuel production is similar to other major oil companies expected to report tomorrow. This strategy has allowed the Dutch-British company to outperform rivals this year, with its share price up 8%. The CEO vowed to continue with cost reduction initiatives, including headcount reductions in its low-carbon division. Analysts have taken note of ExxonMobil's focus on cost-cutting and maintaining stable hydrocarbon production, leading to an upgrade at TD Bank just days before its earnings release. Higher crude oil prices following tensions in the Red Sea are expected to boost free cash flow for US-based majors such as ExxonMobil and Chevron.

What to Expect From Big Oil in the US

ExxonMobil is projected to report a further decline in earnings to $2.12 as sales drift lower to $84.0 billion, mainly due to comparatively lower crude oil prices retreating from last year's highs. Chevron will also report on Friday, with a similar earnings pattern expected at $3.21 on $49.7 billion in sales. However, the smaller Chevron may see improvements thanks to its higher reliance on LNG. But this might not translate to long-term gains after the Biden Administration suspended new LNG export projects, including to the key European market.

For investors, the focus is likely on free cash flow for ExxonMobil and Chevron, as share prices have been supported by expectations that higher profits from increased crude oil prices will be passed directly to shareholders. However, it may require a more substantial earnings beat for stock prices to sustain gains in a market marked by high crude price volatility due to geopolitical factors.​

Exxon in C&H or iH&C Pattern

ExxonMobil's share price could not sustain levels above $105, with the recent decline generating arguments about whether a 'cup and handle' formation may transpire. Further gains taking the stock towards $110 and above would lend credence to the pattern. Alternatively, accelerated downward momentum risking a move back into the double-digit range could heighten the probability of developing an 'inverse head and shoulders' pattern, with a projected target of approximately $97.5.

Source: SpreadEx / Exxon Mobil

Key Takeaways

Shell's earnings exceeded analyst expectations, signalling positive results for other major oil companies reporting Friday. Despite lower oil prices, Shell boosted its dividends and share buybacks by focusing on LNG and high-margin fossil fuel production, allowing it to outperform its rivals. Higher crude prices due to Mideast tensions may boost cash flow for ExxonMobil and Chevron, though ExxonMobil and Chevron expect lower earnings. Investors may watch free cash flow to gauge shareholder returns and how much Chevron's LNG reliance might translate to gains. A strong earnings beat may be needed for share prices to sustain gains.