Fat Profits Of Exxon, Chevron & Co. To Get Fatter? Oil 'Big Winner' Thanks To China's Reopening

Oil rallied through the first half of 2022 and peaked at $123.68 on June 14. The commodity trimmed its gain in the second half but ended the year with roughly a 7% gain as opposed to the losses experienced by most other asset classes.

The commodity’s gain buttressed the bottom line of oil companies such as Exxon Mobil Corp. XOM, Chevron Corp. CVX and Occidental Petroleum Corp. OXY.

Although oil has traded on a tentative note so far, things could look up for the commodity in the near term, according to a private research report.

What Happened: Oil is a big winner from China’s reopening, boosting global demand for energy and metals, said Wood Mackenzie, a global research, analytics and consultancy firm.

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The firm said that most demand growth, even in a base-case scenario, is predicated on a return to normal Chinese mobility.

“An even higher Chinese demand equals even higher prices.”

The firm estimates that consumption by China alone could account for 1 million barrels per day of the 2.6 mb/d increase in 2023.

China’s reopening, the firm said, would mean there will be no hard landing in 2023. It expects international oil companies to see a crescendo of quarterly profits throughout the year as oil prices surge.

Oil demand in Europe and the U.S. will also likely remain resilient despite slowing economic growth, it said.

Barring a significant recession, Wood Mackenzie estimates the price of Brent crude will rise to $89.50 per barrel in 2023, up 17% from current levels. Assuming a similar percent of price increase for the WTI grade crude oil, which is light sweet grade oil sold in the U.S., oil prices will rise to $83 a barrel, up from a little over $70 currently.

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Why It’s Important: For 2022, Exxon Mobil earned $55.74 billion on a GAAP basis, up 32.7%. Meanwhile, Chevron’s net profit more than doubled from $15.63 billion to $35.46 billion. Incidentally, companies belonging to other sectors found it hard to grow the bottom line amid a tough year in 2022.

High-profile tech companies resorted to mass layoffs to cut costs and grow the bottom line as the top line either flat-lined or fell.

As gasoline prices rose sharply in mid-2022, President Joe Biden launched a scathing attack on the oil companies for cutting back oil refining to put pressure on supplies and pump up prices.

The higher oil price in the first half of 2022, seen as a function of the war in Ukraine, prompted the president to urge oil companies to use the profits to increase supplies to return them to consumers in the form of price reductions. He warned that they should face the prospect of paying a higher tax on their excess profits or face other restrictions.

United States Oil Fund, LP USO traded up 0.89% at $62.16 in premarket trading on Thursday, according to Benzinga Pro data. The ETF has shed about 12% year-to-date.

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