An Unclear Outlook for Oil Giants

Exxon Mobil made $56 billion in profit last year, its largest annual haul ever. Chevron earned $36 billion, also a company record. But after a bountiful 2022, the outlook for those companies and other big oil and gas producers is cloudy.

They benefited for much of last year from higher prices for fuels as the continued recovery from the pandemic increased demand and the Russian invasion of Ukraine strained supplies. The landscape already looks different.

Oil prices have settled to a level more than a third lower than their peak shortly after the Ukraine war began last February, and natural gas prices have crashed by 70 percent from their highs in August, mostly because of a warm winter in much of Europe and the United States.

“We don’t know what’s ahead in 2023,” Mike Wirth, Chevron’s chief executive, recently told analysts, adding that the uncertainty called for “operational discipline.”

The U.S. Energy Department has projected that prices for Brent crude oil, the global benchmark, will average $83 a barrel this year — historically high, but 18 percent below 2022 levels. Gasoline-refining margins will slide by nearly 30 percent this year, the department forecasts, leading to an average U.S. price for regular gasoline of 87 cents a liter, more than 26 cents below prices following Russia’s invasion of Ukraine in early 2022. The department also expects natural gas prices to average 25 percent below last year’s.

While lower prices are a comfort for consumers, they take a toll on net profits. Oil and gas companies expect a profitable 2023, but revenues and profits should drop below those in 2022. They have promised investors not to repeat the past mistake of drilling so much that prices crash. They have been hesitant to aggressively expand production or take meaningful steps to build profitability around cleaner fuels. Instead, executives said they would return surplus cash to shareholders by increasing dividends and buying back shares. Chevron announced a $75 billion buyback program last month. Exxon announced its own $50 billion plan in December.

While critics often accuse the oil industry of profiteering when prices are high, executives say their companies are prone to cycles. Their share prices have rocketed over the last year after a decade of underperforming almost every other industry. Only two years ago, Exxon reported an annual loss as demand collapsed because of the pandemic.

The variables that will determine oil companies’ profitability this year are largely out of their control — in both supply and demand. The war in Ukraine could expand or not; a recession in the United States and Europe could be deep or averted entirely.

The International Energy Agency has projected that oil demand this year will grow modestly, by nearly two million barrels a day, reaching 101.7 million barrels a day.

That may support oil company profits.

As pandemic restrictions have eased, an increase in air travel has added to the demand for jet fuel. And with lockdowns lifted in China, its economy should grow faster, and demand for oil and gas should increase. But the picture remains unfocused.

“We are underinvesting as an industry,” Darren Woods, Exxon’s chief executive, told analysts on January 31, noting that many oil fields were depleting. “We see the potential for continued tight markets.”

Exxon reported in December that it would spend $23 billion to $25 billion on exploration and production this year, which experts say could drive an increase of more than 10 percent in its production of oil and gas.

Chevron plans to spend roughly $17 billion this year on exploration and production.

Major oil companies, particularly Exxon, Chevron and ConocoPhillips, may be cautiously moving back to the Middle East, after decades in which they looked elsewhere to avoid the turbulence of political strife and expropriations.

Exxon recently announced that it had acquired two deepwater blocks for gas exploration off Egypt. That gives the company a large unbroken stretch of sea between Egypt and Cyprus to explore for gas.

Chevron, which operates two gas fields off Israel, recently announced a large discovery off Egypt. In his conference call with analysts, Mr. Wirth said Chevron was working on development plans in Israeli waters and elsewhere in the East Mediterranean.

“We’re developing our exploration plans,” he said. “You’ll hear more about that as we go forward. So, it’s a high priority.”

Executives point to factors out of their control, like war.