Shares of major U.S. energy companies experienced widespread declines in the first hour of trading on Friday, subsequent to the recently released subdued earnings reports from oil giants Exxon Mobil Corp. (NYSE: XOM) and Chevron Corp. (NYSE: CVX).
The Energy Select Sector SPDR Fund (NYSE: XLE), a gauge for energy sector performance, experienced a 1.7% drop, setting it up for its worst session since the end of January.
What Happened: Exxon Mobil reported a disappointing start to the year with its first-quarter earnings missing the mark.
The oil giant posted an earnings per share (EPS) of $2.06, falling short of the forecasted $2.189.
Although revenue exceeded expectations at $83 billion against an anticipated $79.7 billion, its net production dipped slightly from 3.83 million oil-equivalent barrels per day the same period last year to 3.78 million oil-equivalent barrels per day.
The adjusted net profit also declined to $8.22 billion from $11.62 billion a year earlier, affected by lower refining margins and natural gas prices.
Chevron managed to align more closely with analyst expectations, delivering an EPS of $2.93 compared to the projected $2.99.
Revenue saw a slight beat at $48.7 billion versus $48.4 billion. Chevron's upstream business exceeded forecasts, posting earnings of $5.501 billion versus the $5.12 billion expected, although the first quarter print lower than the previous year's $6.574 billion.
Chevron also provided updates on its ongoing merger process with Hess Corp. (NYSE: HES), indicating progress towards compliance with regulatory requirements.
Furthermore, another oil player, Phillips 66 (NYSE: PSX), which ranks as the seventh-largest constituent in the XLE ETF, also reported earnings and revenue that fell below expectations.
Why It Matters: Energy has stood out as the top-performing sector in the S&P 500 this year, with the XLE gauge climbing 14%. However, this leading edge is now diminishing as major oil companies such as Exxon Mobil and Chevron pull back.
Together, Exxon and Chevron represent approximately 40% of the holdings in the prominent energy-related ETF, underscoring their significant influence on the sector.
Should their stocks not rebound, the implications could extend beyond these industry giants, potentially affecting the performance of smaller entities within the sector.
Market reactions: As of 11:15 a.m. ET, Exxon Mobil Corp.'s shares had dropped nearly 4%, marking their potential worst day since mid-March 2023.
Chevron Corp.'s shares declined by a modest 0.8%, threatening to end a seven-day streak of gains.
Additionally, Phillips 66 experienced a sharp decline, falling 4% and setting up what could be its worst trading day since October 2023.