Chevron's Refining Loss Drags Down Earnings, Shares Fall

Chevron Corporation (NYSE: CVX) reported earnings for the fourth quarter of 2024 that missed analyst estimates, as the company's refining business posted a loss for the first time in four years. The refining loss, driven by weak margins and lower fuel sales, contributed to a decline in the company's overall earnings. Chevron's shares fell in early trading on Friday following the release of the earnings report.



Chevron reported adjusted earnings of $2.06 per share for the fourth quarter, compared to the $2.11 per share expected by Wall Street analysts. The company's refining business posted a loss of $248 million, compared to a profit of $1.15 billion in the same period a year ago. The refining loss was primarily due to weak margins, which pushed the business into the red for the first time since 2020.

The refining loss was driven by a combination of factors, including weak fuel sales, softened margins, and weak jet fuel demand. The post-pandemic demand surge faded, and economic activity faltered in the United States and China, the two largest oil consumers, leading to a decrease in fuel sales across the industry, including Chevron. Margins softened in both the U.S. and international markets, further impacting Chevron's refining business. The company's U.S. fuel sales fell by 3% year-over-year, exacerbating the troubles for its domestic business. Weak jet fuel demand, particularly in the United States, also contributed to Chevron's refining loss, likely due to reduced air travel and other factors related to the economic slowdown.

Chevron's shares fell 2.2% in premarket trading on Friday following the publication of its earnings report, after closing Thursday up 1% at $165.28. The stock is nearly 11% higher this year.

Despite the down quarter, analysts project companies like Chevron and its competitor ExxonMobil (XOM), which also reported earnings Friday morning, to return to increasing revenue and profits in the current quarter if they can match or beat last year's levels.

Chevron's refining loss is expected to have a negative impact on the company's share price and investor sentiment in the short term. The loss in the refining business may lead to a decrease in Chevron's earnings per share (EPS), which could negatively impact the company's stock price. The market may react negatively to the earnings miss, as indicated by the fact that Chevron's adjusted EPS of $2.06 was below Wall Street's $2.11 estimate. This could result in a sell-off of Chevron's shares, at least in the short term.

However, in the long term, the impact of the refining loss on Chevron's share price and investor sentiment may be less significant. Chevron's upstream business, which involves the exploration, development, and production of crude oil and natural gas, is expected to continue to perform well. The company's oil production held relatively flat in the fourth quarter at 3.35 million barrels of oil equivalent per day (boepd), compared with 3.39 million bpd a year ago. This stable production, along with Chevron's strong balance sheet and dividend history, may help to offset the negative impact of the refining loss in the long term.

Moreover, Chevron's refining business is just one part of the company's overall operations. The company's integrated energy and chemicals operations span the entire value chain, from exploration and production to refining, marketing, and petrochemicals. As such, the impact of the refining loss on Chevron's overall financial performance and share price may be limited.

In conclusion, while the refining loss may have a negative impact on Chevron's share price and investor sentiment in the short term, the company's strong upstream business and integrated operations are expected to help mitigate the impact in the long term. Investors should closely monitor Chevron's refining performance and the broader market conditions to make informed decisions about the company's stock.