almost 2 years ago • 3 mins
Exxon Mobil reported booming profits on Friday, even if the oil giant had to scrap some best laid plans along the way.
What does this mean?
You know the oil price is in top form when a major producer can wipe billions off its books and come out swinging. That’s exactly what Exxon did last quarter: it wrote down $3.4 billion from the value of its Russian business and still posted a $5.5 billion profit – twice as much as the same time last year. “That’s cute,” said Chevron: the rival oil giant’s profit more than quadrupled, hitting its highest for a quarter since 2012. The company’s “free cash flow” hit a 17-year high too, meaning the world is Chevron’s oyster: it could use that money to buy back shares, boost its dividends, or pay off the debt it’s built up in the last couple of years.
Why should I care?
The bigger picture: Heating isn’t getting any cheaper.
Exxon is ahead of Chevron on that front: the company just announced that it’s as much as tripling its share buybacks. The move – which will reduce the amount of available shares and push up the value of those left over – comes a day after TotalEnergies pledged to buy back $2 billion worth of its own stock by July. Big Oil investors are loving it, but governments aren’t keen: they’re pressuring energy companies to invest the money into oil production, as consumers pay an arm and a leg at the gas pump.
For markets: Push and pull.
The oil price just notched its fifth monthly gain in a row in April, but the slippery elixir could be left in limbo in the next few months. On the one hand, prices are set to keep rising: the European Union’s threat of a ban on Russian oil could see to that. But on the other, China’s relentless Covid lockdowns are damaging demand from the world’s biggest oil importer, which is bound to have the opposite effect.
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Data out last week showed the eurozone economy barely grew last quarter. As for why, take your pick…
What does this mean?
Europe’s ongoing battle with inflation, war, and supply chain issues all conspired to drag down the region’s economy, which only grew 0.2% last quarter compared to the quarter before. All its major economies were impacted: Spain’s growth slowed considerably, France’s output didn’t grow at all, and Italy’s shrank. Germany didn’t exactly shoot the lights out either, with its economy growing just 0.2%. But it was the only one to actually beat expectations. Oh, and its uptick marked a rebound from the previous quarter’s 0.3% contraction, which means it narrowly avoided slipping into a recession. Phew.
Why should I care?
The bigger picture: Rock, meet hard place.
This data will no doubt make the European Central Bank (ECB) uncomfortable, especially combined with inflation that won’t stop rising: new data on Friday showed that consumer prices in the eurozone were 7.5% higher in April than a year ago – the second record-high in a row. And to think, the ECB’s aim for inflation is down at the 2% mark. That means the central bank will probably have no choice but to raise interest rates this year, even though it’s been adamant it wouldn’t do that. That creates a whole new problem, mind you: higher interest rates slow down consumer and business spending, which could hamstring growth even more.
Zooming in: Stop fighting it, ECB.
Europe’s record inflation was mostly driven by energy prices in the region, which were 38% higher in April than they were a year ago. And with Russia halting natural gas supplies to Poland and Bulgaria last week, gas prices have just risen another 20%. That’ll only push inflation higher, and could force a reluctant ECB to step in even sooner.
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