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How Will Chevron’s Segments Perform in 3Q17?

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Chevron’s segmental analysis in 2Q17

Before we proceed with Chevron’s (CVX) 3Q17 segmental outlook, let’s look at the company’s 2Q17 segmental performance. CVX’s earnings rose in 2Q17 compared to 2Q16. Chevron’s upstream segment, which posted a loss in 2Q16, saw its earnings grow to $853 million in 2Q17. The upstream earnings rose due to a rise in international earnings. Also, the loss in domestic earnings was minimized.

Peer ExxonMobil’s (XOM) upstream earnings rose from $294 million in 2Q16 to $1,184 million in 2Q17. Royal Dutch Shell’s (RDS.A) earnings from the upstream segment, which stood at -$1,325 million in 2Q16, turned to a profit of about $339 million in 2Q17 on an adjusted basis. BP’s (BP) adjusted upstream earnings, which stood at $29 million in 2Q16, rose to $710 million in 2Q17.

Chevron’s downstream segment saw its earnings fall 6% YoY to $1,195 million in 2Q17, which was due to a drop in international downstream earnings, partly offset by a rise in domestic downstream earnings.

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Chevron’s 3Q outlook

Chevron is likely to see growth in its upstream and downstream earnings in 3Q17 over 3Q16. Brent and WTI crude oil prices have improved in 3Q17 over 3Q16. Brent and WTI prices stood at $47 per barrel and $45 per barrel, respectively, in 3Q16. But Brent and WTI increased to $52 per barrel and $48 per barrel, respectively, in 3Q17. Moreover, Henry Hub natural gas prices climbed from $2.8 per MMBtu (million British thermal units) in 3Q16 to $3.0 per MMBtu in 3Q17. Everything else being equal, a rise in crude oil and natural gas prices suggest a likely improvement in Chevron’s upstream earnings in 3Q17.

Plus, downstream earnings are also likely to be influenced by wider refining cracks in 3Q17 compared to 3Q16. For instance, the US Gulf Coast WTI 3-2-1 crack, the broader market crack indicator, expanded sharply by $6.8 per barrel over 3Q16 to $20.5 per barrel in 3Q17. The rise in refining cracks is mainly attributed to Hurricane Harvey.

Also, quarter-over-quarter, in 3Q17, USGC cracks have risen. But WTI prices have remained flat quarter-over-quarter in 3Q17.

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