WTI Prices to Weigh on Marathon and Devon Earnings

Due to the general downward trend in crude oil prices over the course of the quarter, analysts anticipate lower earnings, but some companies may report higher-than-expected numbers through improved efficiency savings.​

Marathon's Refining Business Faces Challenges

Marathon Petroleum faces declining crude oil prices as global demand for oil is expected to weaken. US refineries worked hard in previous years, but some faced unplanned maintenance issues earlier this year. However, demand for refined fuels in the US has decreased while new refineries have opened, increasing processed crude inventories. This has led to a significant drop in refining margins. Approximately one-third of Marathon's refining capacity is located in the Gulf Coast region, where margins have fallen by as much as 50% compared to the previous year. While two major hurricanes occurred this season, they largely missed oil refining areas in the western Gulf Coast.

Marathon will report earnings on Tuesday before the market opens. Analysts expect Marathon to report an EPS of $0.98 for the last quarter, a large decrease from the unusually high $8.14 in the same period last year. Due to lower prices, sales are predicted to fall 21% to $32.8 billion. Investors will seek guidance on Q4 production levels and comments about potential efficiency improvements in refinery operations.​

Devon’s Ongoing Impact of the Energy Transition

The oil and gas exploration company is expected to continue facing headwinds as the development of new production has largely stagnated over the last year with crude prices below the post-invasion of Ukraine highs. Both the International Energy Agency and OPEC forecast a decline in demand in the coming years. This is compounded in the near term by the drop in crude prices over the last three months and slowing demand from refineries. The company has been borrowing money and is integrating the Williston Basin business it acquired earlier in the quarter.

Devon's earnings are expected to decline to $1.09 per share from $1.65 per share a year ago, with revenues of $3.74 billion being slightly lower than the $3.93 billion reported in the second quarter. The company recently boosted its production guidance for the year and its share repurchase programme. These are likely the twin issues investors will focus on when evaluating the company's share price performance.​

Devon Near End of Trend?

Devon Energy's share price decline may have been completed after falling from $80 to $40 in a wedge pattern, followed by a partial recovery to $55 and further decreases in a second leg down. As the share price is now below $40, the overall trend could reverse with the potential to rise above $43, $45 and ultimately $50. Conversely, if the price falls below $37, it could continue lower to around $32 or even $26, as the broader market trend may still be bearish.​

Key Takeaways

Analysts anticipate lower earnings for oil companies this quarter due to declining crude prices, though some companies may report higher profits through efficiency savings. Marathon Petroleum, for one, faces challenges from falling oil prices and increased US fuel inventories, squeezing refining margins. Approximately a third of its refining capacity is in the Gulf Coast, where margins dropped 50% year-on-year. It reports earnings on Tuesday, with analysts forecasting a large EPS decline. On the other hand, Devon Energy continues facing headwinds as oil demand growth slows amid the energy transition with both the IEA and OPEC projecting declining demand. Devon integrated acquisitions while borrowing more as prices and refinery demand dropped. Earnings are expected to decline, though production guidance and buybacks will be key focuses.