Exxon Mobil Faces Pressure From New Tariffs As Energy Stocks See Turmoil

The energy sector is facing significant headwinds as the Trump administration's new tariffs add complexity to an already volatile market. exxon mobil Corp. (NYSE:XOM), one of the world's largest oil and gas companies, is feeling the pinch as these tariffs disrupt its export strategy and compress refining margins. The company's recent quarterly results reflect the strain, with a 67% plunge in 2024 refining profits and a 72% decline in Chevron's refining profits, highlighting the broader impact on the industry.

The tariffs, which include a 34% tariff on imports from China and a 20-24% tariff on imports from the European Union and Japan, are part of a broader trade war initiated by President Donald Trump. These measures are aimed at rectifying non-reciprocal trade practices but have created a complex trade environment for energy companies like Exxon Mobil.

The impact on Exxon Mobil is evident in its recent quarterly results, where the company's revenue was under pressure due to compressed refining margins amid tariff-induced uncertainties and cost increases. The company beat EPS forecasts at $1.67 per share, but the overall financial performance was underwhelming. This is further exacerbated by the overall trade environment, where retaliatory measures from key markets like China could reduce US crude export volumes and compress refining margins for Exxon Mobil Corp.

To navigate these challenges, Exxon Mobil is reassessing its export strategy by exploring alternative markets in India, Europe, and domestically within the US. However, re-routing shipments incurs higher logistical costs and may disrupt established supply contracts. Exxon's competitive strengths, such as its low-cost production assets in the Permian Basin and offshore Guyana, remain vital. The company must carefully balance cost increases against potential revenue losses in traditional markets like China.

Exxon Mobil's strategic reallocation and cost considerations are crucial in mitigating the adverse effects of these tariffs. The company's decision to raise capital spending to more than $30 billion annually over the next five years, as announced by CEO Darren Woods, is aimed at expanding production to levels not seen since the 1970s. This investment strategy is supported by the high margins of new oil projects in Guyana and the Permian Basin, which are expected to drive Exxon's break-even oil price down to just $30 a barrel by the end of the decade. This ensures profitability despite the evolving energy transition and trade uncertainties.



The broader energy sector is also feeling the strain. The S&P 500 energy sector fell by nearly 10% in December 2024, reflecting the sector's volatility. However, performance over the past 3-year and 5-year periods remains strong, with the energy sector up more than 20% per year for the three-year period ending December 2024, and 12.14% per year over the previous five years. This indicates that despite the current challenges, the sector has the potential for long-term growth.

In conclusion, the newly imposed reciprocal tariffs by the Trump administration are adding complexity to the global trade environment, impacting Exxon Mobil's export strategy and cost dynamics. The company is adapting by exploring alternative markets and increasing capital spending to maintain profitability amidst the trade war challenges. While the energy sector faces near-term headwinds, the long-term outlook remains positive, supported by strengthening global demand for energy and a tight rein on supply by OPEC.

Ask Aime: What impact will the new tariffs have on Exxon Mobil's future earnings?