Iran War Disrupts Oil Production, Hits Big Energy Companies' Profits
The Iran war has dealt a significant blow to Exxon Mobil Corp. and Chevron Corp., two of the world's largest energy companies, despite a surge in oil prices. The conflict has disrupted production in the region, with the Strait of Hormuz essentially closed due to shipping blockades.
Exxon and Chevron lost about 6% of their global production in the first quarter, while Shell Plc's gas output was 5% lower. This is a significant hit, especially considering that Brent crude prices have surged above $112 a barrel for the first time in four years.
The companies' hedging losses also played a role in their reduced profits. They were forced to post paper losses on hedges associated with cargoes that will take several weeks to be delivered due to the sharp price increase in March. This accounting practice, known as mark-to-market derivative losses, resulted in about $7 billion of combined losses for Exxon and Chevron.
Exxon's guidance pointed to earnings that were 'well below' forecasts, mainly due to these timing effects, according to Lloyd Byrne, an analyst at Jefferies Financial Group Inc. The disruption in the region is expected to continue if the Strait of Hormuz remains shut for an extended period.