Will Chevron’s Upstream and Downstream Earnings Rise in Q2 2018?

Before we proceed with Chevron’s (CVX) second-quarter segmental outlook, let’s briefly look at its first-quarter segmental performance.

Chevron’s earnings improved in the first quarter of 2018 compared to the first quarter of 2017. Chevron’s adjusted upstream segment earnings rose from $1.19 billion in the first quarter of 2017 to $3.35 billion in the first quarter of 2018. Its upstream earnings rose due to higher hydrocarbon production coupled with better oil prices.

Chevron’s peer Royal Dutch Shell’s (RDS.A) adjusted profit rose 41% YoY (year-over-year) due to a threefold rise in its upstream earnings in the first quarter. BP’s (BP) adjusted upstream EBIT rose from $1.4 billion in the first quarter of 2017 to $3.2 billion in the first quarter of 2018.

Chevron’s adjusted downstream earnings fell 26% YoY to $717 million in the first quarter. The fall was primarily the result of lower margins and lower throughputs.

Chevron’s upstream and downstream earnings could grow YoY in the second quarter.

Crude oil prices rose YoY in the second quarter of 2018. Brent prices rose from $51 per barrel in the second quarter of 2017 to $75 per barrel in the second quarter of 2018. Similarly, WTI prices surged from $48 per barrel in the second quarter of 2017 to $68 per barrel in the second quarter of 2018. This change could improve CVX’s second-quarter realizations, which could lead to higher upstream earnings for the company.

Downstream earnings are also likely to be supported by wider refining cracks YoY in the second quarter. For instance, the US Gulf Coast WTI 3-2-1 crack, the broader market crack indicator, expanded 20% over the second quarter of 2017 to $18 per barrel in the second quarter of 2018.