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Will Chevron’s Upstream Earnings Fall in Q1 2019?

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Apr. 11 2019, Published 3:29 p.m. ET

Segmental analysis

Before we take a look at Chevron’s (CVX) first-quarter segmental outlook, let’s briefly consider the company’s fourth-quarter segmental performance.

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Chevron’s earnings surged YoY (year-over-year) in the fourth quarter. Its Upstream segment’s adjusted earnings rose from $1.9 billion in the fourth quarter of 2017 to $3.3 billion in the fourth quarter of 2018. Its Upstream earnings increased due to higher hydrocarbon production and better oil prices.

Chevron’s peer ExxonMobil’s (XOM) Upstream earnings increased from $2.5 billion in the fourth quarter of 2017 to $3.7 billion in the fourth quarter of 2018. Similarly, Royal Dutch Shell’s (RDS.A) adjusted Upstream earnings rose from $1.7 billion in the fourth quarter of 2017 to $1.9 billion in the fourth quarter of 2018.

Chevron’s adjusted Downstream earnings rose 362% YoY to $0.8 billion in the fourth quarter of 2018, mainly due to better margins domestically as well as internationally. However, Chevron’s total throughput fell 0.8% YoY in the fourth quarter.

Chevron’s first-quarter expectations

Chevron’s Upstream earnings could fall YoY in the first quarter. Brent prices fell from $67 per barrel in the first quarter of 2018 to $64 per barrel in the first quarter of 2019. Similarly, WTI prices plunged from $63 per barrel in the first quarter of 2018 to $55 per barrel in the first quarter of 2019.

These falls could affect Chevron’s first-quarter realizations. However, the company, which saw record volumes in the fourth quarter, could continue to see higher volumes in the first quarter. Lower realizations partly offset by higher volumes could lead to lower Upstream earnings for Chevron.

Chevron’s Downstream earnings are also likely to be affected by narrower refining cracks in the first quarter of 2019 over the first quarter of 2018. The US Gulf Coast WTI 3-2-1, the benchmark crack spread, narrowed 3% over the first quarter of 2018 to $15 per barrel in the first quarter of 2019.

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