Too much money: What Trump’s criticism means for Exxon and Chevron

Trump sends the bill

U.S. President Donald Trump demanded that ExxonMobil and Chevron lower fuel prices. He said the oil companies were making excessive profits from shortages caused by the war in Iran, CNBC reported.

“Chevron, too much money. ExxonMobil, too much money,” Trump told reporters at the White House. He added that the companies should return some of their earnings to Americans by cutting retail gasoline prices.

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Trump also singled out Chevron CEO Mike Wirth for criticism. The president was unhappy that Wirth discussed the company’s success without mentioning support from the U.S. administration. Trump noted that the White House had helped Chevron return to Venezuela after local authorities had previously pushed the company out.

The pressure intensified after the oil giants published their quarterly results. Chevron earned $12 billion in three months, almost five times more than a year earlier. ExxonMobil’s profit rose from $7.1 billion to $14.5 billion.

At the same time, costs for drivers increased sharply. Since the start of the war, WTI crude has gained about 20%, while the average gasoline price has risen from $2.98 to $4.10 per gallon. Chevron shares fell nearly 2% after Trump’s criticism, while ExxonMobil stock also edged lower.

Shortages bring billions

ExxonMobil and Chevron benefited from the sharp rise in oil prices. From April through June, WTI crude averaged $92.45 per barrel, 27% higher than in the first quarter.

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The companies earned even more from refining. Chevron generated $4.9 billion from this business, compared with $737 million a year earlier. ExxonMobil’s refining profit reached $5.5 billion after the segment posted a $1.3 billion loss in the first quarter.

The main reason was a shortage of gasoline, diesel and jet fuel. The war restricted shipments through the Strait of Hormuz, while attacks on infrastructure in Iran, other parts of the Middle East and Russia reduced available capacity. Global refinery output fell by about 5 million barrels per day in the second quarter.

U.S. refineries found themselves in a favorable position. By late July, they were operating at an average of 97% of capacity, compared with a typical level of about 90%. As fuel supply tightened, oil companies earned more from refining each barrel.

Both companies also increased production. Chevron raised output to 4 million barrels per day, up 20% from a year earlier. ExxonMobil produced about 4.5 million barrels per day, while its output in the Permian Basin reached a record high.

Pressure without leverage

Trump’s demand for lower prices sounds tough, but ExxonMobil and Chevron cannot directly set gasoline prices at filling stations. They depend on crude prices, refining and transportation costs, taxes, fuel inventories and the margins charged by station owners.

The White House could try to increase oil supply by releasing more barrels from the Strategic Petroleum Reserve. However, its inventory has already fallen to the lowest level since February 1983. Authorities released nearly 3 million barrels into the market in the past week alone.

The shortage of refining capacity is another problem. U.S. refineries are already operating close to their limits, while new plants cannot be built quickly and damaged facilities in the Middle East cannot be restored overnight. Even cheaper crude would not guarantee an equally rapid decline in gasoline prices.

So far, Trump has managed to influence the market by promising that the war will end soon. Oil prices fell about 5% in a single day after reports of possible talks with Iran. But market participants are responding less to the president’s statements and paying more attention to actual shipments through the Strait of Hormuz.

A strong safety margin

Trump’s criticism has not changed ExxonMobil and Chevron’s plans so far. The companies continue to increase production, operate refineries close to full capacity and benefit from high oil and fuel prices.

According to Reuters, Chevron has even decided to award most employees a special bonus equal to half of one month’s base salary. Management attributed the payment to record results, lower costs and faster-than-expected benefits from the Hess acquisition.

Strong refining earnings could also continue. Damaged refineries in the Middle East and Russia cannot be restored within a few weeks, while global oil and fuel inventories continue to decline. The U.S. Energy Information Administration estimates that they fell at a rate of 5.1 million barrels per day in the second quarter.

The biggest threat is peace

Trump’s criticism does not yet appear to pose a serious threat to ExxonMobil and Chevron. The president can pressure the companies publicly, but he cannot quickly force them to lower prices while oil and fuel remain in short supply.

The real risk for the oil giants is not the White House but the end of the war. If shipments through the Strait of Hormuz recover, refineries return to normal operations and the fuel shortage disappears, windfall profits will begin to shrink. Until then, ExxonMobil and Chevron will probably continue earning more than the U.S. president would like.

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