Exxon, Chevron Succumb to Oil-Refining Slump as Tariffs Loom

(Bloomberg) -- Profits for Exxon Mobil Corp. and Chevron Corp were slammed by slumping fuel margins as the prospect of US tariffs on two major oil suppliers threatens to make the refining business even worse.

Exxon posted a 67% plunge in 2024 refining profits on Friday, and Chevron disclosed an even larger decline of 72%. The biggest North American oil companies succumbed to the same forces slashing results for fuel producers around the world — a flood of new output amid stagnating demand.

Those lackluster performances in a key business line come as US President Donald Trump ramps up threats to lay steep tariffs on Canada and Mexico, both of which are crucial sources of crude for US-based refineries. Such levies — which Trump said may take effect as soon as the weekend — would increase the cost of making everything from gasoline and diesel to jet fuel.

The president vowed Thursday to follow through on long-promised 25% tariffs on Canadian and Mexican products, though he declined to say whether oil would be included in the list. His self-imposed effective date is Feb. 1.

Refineries in the US Midwest depend on Canadian oil for as much as three-fourths of their crude inputs. Meanwhile, Mexican supplies have long been a staple of Gulf Coast fuel-making plants designed to maximize output from so-called heavy crude. As the cost of buying oil from those two nations rises, it could create a knock-on effect for other types of crude as refiners clamor to secure replacement barrels with similar characteristics.

Chevron’s domestic refineries tend to hug coastal areas, which means they have easier access to crude cargoes from overseas compared with inland competitors, said Chief Executive Officer Mike Wirth.

“We tend to be more around the coasts so we’ve got more flexibility because you can bring in product on ships as opposed to by pipeline from Canada.” Wirth said during an interview with Bloomberg Television. “Last year, less than 10% of our feedstock came from either Mexico or Canada and so our company wouldn’t probably feel it quite the way the others would. But if could create some impacts depending upon where your assets are.”

Exxon’s full-year refining earnings dropped to $4 billion from $12.1 billion in 2023, according to a statement Friday. As for Chevron, its global fleet of plants earned just $1.7 billion last year, down from $6.1 billion. 

The fourth-quarter was especially stark for Chevron’s US refineries, which lost almost $350 million, according to a company release.

“The largest downside surprise came from the oil major’s US refining segment, which reported its first quarterly loss since early 2021 and was well below expectations,” said Peter McNally, an analyst at Third Bridge.

Exxon shares rose 0.8% at 9:33 a.m. in New York. Chevron fell 2.5%.

Levies on Canada and Mexico could curtail shipments of roughly 4 million barrels a day of oil from the north and 500,000 barrels a day from the south. The nations are the top two sources of foreign crude for US refiners.

Valero Energy Corp., the third-largest independent US refiner by market value, on Thursday warned that the industry may cut fuel production if Trump carries out his tariff threat. Mexico is Valero’s biggest source of oil. Independent refiners are those that don’t drill for crude.

Across all its business lines, Exxon posted adjusted fourth-quarter earnings of $1.67 a share that exceeded the consensus forecast by 12 cents. 

Chevron, meanwhile, reported quarterly earnings of $2.06 a share, a nickel below expectations. The miss came a day after competitor Shell Plc also disclosed disappointing end-of-year profits.

Exxon surprised investors last month by raising capital spending to more than $30 billion annually over the next five years as Chief Executive Officer Darren Woods expands production to levels not seen since the 1970s. 

Woods has argued that new oil projects in Guyana and the Permian Basin, along with liquefied natural gas investments, have such high margins that they will drive Exxon’s breakeven oil price down to just $30 a barrel by the end of the decade, ensuring profitability however the energy transition pans out. 

The international Brent crude benchmark averaged roughly $74 a barrel during the fourth quarter, down 11% from a year earlier. The slide pressured the biggest oil companies’ capacity to fund shareholder-friendly outlays such as dividends. 

Exxon generated $36 billion of free cash in 2024 and handed nearly all of it to shareholders in the form of buybacks and dividends, making it the sixth highest cash distributor in the S&P 500 Index. The company intends to buy back $20 billion of shares annually through 2026.

“We’re seeing higher and higher production but that production is coming at lower cost of supply, higher profit barrels,” Chief Financial Officer Kathy Mikells said in an interview. “It’s important to remember that all barrels are not created equal and ours are very advantaged.”

Chevron raised dividends by 5% even as profit underperformed. The company generated $4.4 billion in free cash flow during the quarter, short of the roughly $7.5 billion doled out in the form of dividends and buybacks.

“We’re building from strength to strength and have $10 billion of additional free cash flow growth through the end of 2026,” Wirth said. New projects in Kazakhstan and the newly-named Gulf of America will drive the increase, he said.

(Updates with Chevron CEO’s comment in sixth, seventh paragraphs.)

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