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How falling prices affect big oil companies

Scott Tong Oct 31, 2014
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How falling prices affect big oil companies

Scott Tong Oct 31, 2014
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Exxon Mobil and Chevron report earnings on Friday, and life for Big Oil has been neither light nor sweet lately. Crude prices are at near four-year lows, and that’s not even the whole story.

Even before oil fell below $100 a barrel this fall, big companies were cutting investments and unloading assets. The business is getting more expensive as oil gets harder to find.

“No cheaper, no easier, as the oil company CEOs like to say,” says Steven Kopits of the consultancy Princeton Energy Advisors. “Where they go in deep water, for example, is smaller fields and deeper and more challenging wells. So costs have tended to rise over a period of time.”

It’s true: shale oil from fracking is getting cheaper to produce. But big companies rely on big fields. And now, oil sells for just $85 a barrel. Several majors saw profits fall a third over last year.

The good news: many of them also refine oil. And that’s profitable.

“Companies that have refineries are going to get a boost from refining margins, which is going to offset their upstream losses to a certain extent,” says analyst Amrita Sen of the London research firm Energy Aspects.

Still, low prices mostly hurt companies. And crude could stay south of $100 a barrel for awhile. 

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