Chevron expects a rough second quarter; what does this mean for Big Oil?

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In its interim earnings update yesterday, Chevron (CVX) said that its second-quarter earnings from pumping oil will be better than the first quarter, when low crude and natural-gas prices contributed to the company's poor quarterly results. That said, CVX stated that second-quarter earnings from refining fuel will be "far lower" than the first quarter, citing lower refining margins in the United States and foreign currency effects stemming from the weak dollar. Earnings will be announced on July 31.

Chevron's second-quarter results are expected to come in much lower than last year's $2.90 per share. According to analysts, CVX is expected to post earnings of $1.28 per share. Chevron said production increased 11,000 barrels of oil equivalent during April and May. These two months saw results from overseas exploration and production operations take a hit of more than $400 million thanks to unfavorable foreign currency effects. CVX received, on average, $48.79 per barrel during April and May, up from $36.85 per barrel in the first quarter. The problem is that this is far less than the $113.97 per barrel it received in the second quarter last year.
So, what does this mean for the rest of big oil? Things aren't going to be the same as they were a year ago when oil was at record per-barrel prices. With prices finally coming back down, oil refiners could have a rough couple of quarters. Last year's euphoria over high oil prices and the opportunity provided to big oil companies has waned, and we should see a few quarters of normal results, which will be weak when compared to last year.

Will big oil suffer mightily in the next quarter? Compared to a year ago, yes. Compared to other stocks? Perhaps. Let's not forget that we are heading into hurricane season, which usually brings about a heaping helping of weather-related worries to push the price of crude higher. In addition, the dollar could strengthen against its foreign rivals, providing a bit of a lift for black gold.

Don't count big oil out, just understand that things are going to remain rather volatile for a while. Why? There are still these people called speculators, and their job is to speculate over the price of oil. Now, the economic uncertainty is going to wreak havoc on oil prices -- so expect the lower end of oil's range to see a bit more action than the higher end. Nevertheless, you can never count big oil out. Just be prepared to pay the price for dealing in such a speculative commodity.
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