SAN FRANCISCO - Reporting earnings for a quarter in which crude prices hit a record high once looked to be a lot easier for the world's top oil companies than it actually will be in the next few weeks.
The start of the third quarter in July, the month when U.S. crude oil topped out at $147, must seem a very long time ago for all energy producers now that a barrel goes for half that price.
So while they roll out more fat profits, some even setting new records, big oil companies will also face tough questions about what they plan to do with all the accumulated cash and how their outlook has changed now that crude and natural gas are trading near their lowest levels in more than a year.
"The earnings should be good because prices were high during the quarter, but whether that pulls investors into the stocks, I really don't know," said Mark Coffelt, head portfolio manager at Empiric Advisors Inc in Austin, Texas.
"Right now we have a market of events, as opposed to a market of fundamentals."
The Chicago Board Options Exchange's index of oil companies .OIX has fallen 37 percent since the start of 2008, whereas U.S. crude oil is about 25 percent lower.
Coffelt said he would wait until oil prices stabilize before adding to his energy portfolio, which includes Exxon Mobil Corp (XOM.N: Quote, Profile, Research, Stock Buzz) and ConocoPhillips (COP.N: Quote, Profile, Research, Stock Buzz) -- the latter kicking things off for the sector, reporting on Wednesday.
Exxon, the largest non-government-controlled oil company, is expected to report a 32 percent rise in profit to $12.44 billion, based on Reuters Estimates, which would top the second quarter when its profit was a record for any U.S. company.
Analysts at Morgan Stanley said the market would likely look past the third-quarter profits of nearest rival Royal Dutch Shell Plc (RDSa.L: Quote, Profile, Research, Stock Buzz) and BP Plc (BP.L: Quote, Profile, Research, Stock Buzz) to what the two British oil majors planned to do with their money.
Investors would look for indications from executives of continued strong cash flows, as well as cues on any plans for mergers and acquisitions, Morgan Stanley said.
Jason Kenney at ING said he expected strong performances from Shell as well as BG Group Plc (BG.L: Quote, Profile, Research, Stock Buzz), a British gas producer.
REFINING MARGINS A PLUS
Analysts also expect a recovery in fuel marketing margins, which took a hit in the second quarter as oil companies found it hard to pass on the full extent of surging crude prices.
Despite July's peak, the average U.S. oil price was about $118 a barrel last quarter, $7 lower than the second quarter.
And third-quarter refining margins were much higher in most regions than in the same period of 2007, according to BP data.
Chevron Corp (CVX.N: Quote, Profile, Research, Stock Buzz), the second-largest U.S. oil company which reports on October 31, said this month its third-quarter refining performance would be much stronger, but saw energy production as weaker due to the hurricanes and lower prices.
"We've seen a very substantial drop in oil prices, so the product out of the well is not going to bring the margins," said Frederic Dickson, market strategist at D.A. Davidson.
"I think we are going to hear companies are taking down their estimates, but the question will be have the analysts taken their numbers down low enough? I'm looking for fairly disappointing earnings and guidance, but I think that the market is anticipating earnings shortfalls."
Yet longer-term, others say energy prices must go up.
Andrew Gould, chief executive of oilfield services leader Schlumberger Ltd (SLB.N: Quote, Profile, Research, Stock Buzz), said on Friday that energy prices should bounce back within 18 months if demand remains steady because there is such a shortage in global supply.
Thinking along similar lines, Fred Burke of Johnston Lemon Asset Management said his fund had been buying ConocoPhilips, Schlumberger, Chevron and Devon Energy Corp (DVN.N: Quote, Profile, Research, Stock Buzz) on the view that energy demand in the Middle East and Asia will offset weak U.S. usage, which may be 500,000 barrels a day less in 2009.
"China picks that up right away," he added.
The start of the third quarter in July, the month when U.S. crude oil topped out at $147, must seem a very long time ago for all energy producers now that a barrel goes for half that price.
So while they roll out more fat profits, some even setting new records, big oil companies will also face tough questions about what they plan to do with all the accumulated cash and how their outlook has changed now that crude and natural gas are trading near their lowest levels in more than a year.
"The earnings should be good because prices were high during the quarter, but whether that pulls investors into the stocks, I really don't know," said Mark Coffelt, head portfolio manager at Empiric Advisors Inc in Austin, Texas.
"Right now we have a market of events, as opposed to a market of fundamentals."
The Chicago Board Options Exchange's index of oil companies .OIX has fallen 37 percent since the start of 2008, whereas U.S. crude oil is about 25 percent lower.
Coffelt said he would wait until oil prices stabilize before adding to his energy portfolio, which includes Exxon Mobil Corp (XOM.N: Quote, Profile, Research, Stock Buzz) and ConocoPhillips (COP.N: Quote, Profile, Research, Stock Buzz) -- the latter kicking things off for the sector, reporting on Wednesday.
Exxon, the largest non-government-controlled oil company, is expected to report a 32 percent rise in profit to $12.44 billion, based on Reuters Estimates, which would top the second quarter when its profit was a record for any U.S. company.
Analysts at Morgan Stanley said the market would likely look past the third-quarter profits of nearest rival Royal Dutch Shell Plc (RDSa.L: Quote, Profile, Research, Stock Buzz) and BP Plc (BP.L: Quote, Profile, Research, Stock Buzz) to what the two British oil majors planned to do with their money.
Investors would look for indications from executives of continued strong cash flows, as well as cues on any plans for mergers and acquisitions, Morgan Stanley said.
Jason Kenney at ING said he expected strong performances from Shell as well as BG Group Plc (BG.L: Quote, Profile, Research, Stock Buzz), a British gas producer.
REFINING MARGINS A PLUS
Analysts also expect a recovery in fuel marketing margins, which took a hit in the second quarter as oil companies found it hard to pass on the full extent of surging crude prices.
Despite July's peak, the average U.S. oil price was about $118 a barrel last quarter, $7 lower than the second quarter.
And third-quarter refining margins were much higher in most regions than in the same period of 2007, according to BP data.
Chevron Corp (CVX.N: Quote, Profile, Research, Stock Buzz), the second-largest U.S. oil company which reports on October 31, said this month its third-quarter refining performance would be much stronger, but saw energy production as weaker due to the hurricanes and lower prices.
"We've seen a very substantial drop in oil prices, so the product out of the well is not going to bring the margins," said Frederic Dickson, market strategist at D.A. Davidson.
"I think we are going to hear companies are taking down their estimates, but the question will be have the analysts taken their numbers down low enough? I'm looking for fairly disappointing earnings and guidance, but I think that the market is anticipating earnings shortfalls."
Yet longer-term, others say energy prices must go up.
Andrew Gould, chief executive of oilfield services leader Schlumberger Ltd (SLB.N: Quote, Profile, Research, Stock Buzz), said on Friday that energy prices should bounce back within 18 months if demand remains steady because there is such a shortage in global supply.
Thinking along similar lines, Fred Burke of Johnston Lemon Asset Management said his fund had been buying ConocoPhilips, Schlumberger, Chevron and Devon Energy Corp (DVN.N: Quote, Profile, Research, Stock Buzz) on the view that energy demand in the Middle East and Asia will offset weak U.S. usage, which may be 500,000 barrels a day less in 2009.
"China picks that up right away," he added.
