The mammoth profits made by oil companies across 2022 became one of the biggest stories in financial markets over the year. Across the globe, oil producers were seen making record returns as energy prices exploded. In the West, Exxon, Shell, BP and Chevron were the four highest earners.
However, gains were not uniform and as we start the New Year, traders are looking to see which stock looks the best place to make further gains over the year and which looks likely to underperform.
Energy prices have cooled significantly from the highs seen across the early part of last year and with that, we are looking at a more uncertain landscape for energy producers. However, there are plenty of factors which still hold upside risks this year. Below, we’ll consider some of the key factors driving energy markets and how they look set to impact these stocks moving forward.
Recap of 2022 performance and current price action.
Exxon led the group in 2022 with gains of just over 90%, currently sitting down around 5% from those highs. Chevron was next marking a 62% gain last year, currently sitting around 7.5% off those highs. Shell was in third place with a 52% gain in 2022, now down also around 7.5% from those highs. Finally, BP was in fourth place with around 37% worth of gains on the year, now down around 3.5% from those highs.
Exxon and Chevron as top performers
Exxon and Chevron are set to rake in a record $100 billion in profits between them over 2022. Industry data points to roughly $56 billion in profits for Exxon and roughly $37 billion in profits for Chevron over the year. Interestingly, when compared with Shell and BP, these two producers resisted shareholder and growing activist calls for a switch towards more sustainable forms of energy.
Shell & BP make the green switch
In recent years, the switch towards reducing emissions and focusing on greener forms of energy has become a key theme among energy firms. However, on the back of the pandemic and in light of the disruption caused by the Russian invasion of Ukraine, Exxon and Chevron made the decision to retain focus on their core fossils-fuels business which, despite ethical concerns, has clearly paid out given their performance in 2022.
Looking ahead, both Exxon and Chevron have outlined plans to buyback around $50 billion and $15 billion respectively of their own shares into 2024. This move will increase the power of the executives of the company making it easier for them to shape strategy going forward and allowing for greater profits for the firms.
Fossil fuel price falls
Oil and gas prices have fallen sharply from their 2022 peaks, however, investors are questioning whether focusing on fossil fuels is the right bet. The key split between Exxon and chevron and Shell and BP is also linked to differing views on global demand. Exxon forecasts that global oil consumption will continue to grow over the next two years, creating the need for higher oil output to satisfy these demands. In contrast, BP, for example, forecasts that oil demand is likely to fall rapidly in coming years and has pledged to slash its output by 50% by 2030, switching its focus to greener energy.
Similarly, Shell recently conceded to growing shareholder calls for the company to switch its focus to sustainable energy and has been unveiling new green-energy projects in recent months including plans for a new joint solar energy project with BP in Trinidad & Tobago.
Regulatory & activist impact
There is also a key difference with regards to Shell and BP being based in Europe and Exxon and Chevron being based in the US. Regulatory and activist pressure is greater in Europe and shareholders have made much more of an effort to drive Shell and BP away from the fossil fuel business and into greener energy. Exxon and chevron, however, face much less pressure in the US where the government has been actively trying to ramp up oil production in a bid to drive down oil prices and counter the fresh production cuts announced by OPEC recently.
2023 Outlook
Looking ahead then, the outlook is very much geared toward how oil and gas prices perform in the coming months. If the sell-off in fossil fuels continues, Shell and BP look much better laced to gain given their investment in alternative energies. This is already being seen with Shell performing best on the year so far while Exxon and Chevron reverse quickly from initial 2023 highs. However, if fossil fuels make a comeback this year, then Exxon and Chevron look well placed to extend 2022 gains given their focus on those energy products.
Technical charts – weekly – Exxon & Shell
Exxon chart (weekly)
Source: TradingView / FlowBank
The reversal from the 114.50 level has seen Exxon shares finding support into a test of the 104.94 level, still within the bull channel from 2021 lows. However, the bounce looks to be fading here and the stock is at risk of putting in a lower high, suggesting room for a deeper correction. If price breaks below 104.94, 97.21 is the next support to note, along with the bull channel low.
Shell chart (weekly)
Source: TradingView / FlowBank
The rally in Shell has stalled out for now into a test of the 28.72 level resistance. While below here, the stock is at risk of forming a double top, suggesting room for a break lower. If we move under the rising trend line from 2020 lows 24.60 will be the key downside level to watch. A break below there opens the way for a move down to 21.38 next. To the topside, a break of current 28.72 highs will see bulls targeting a run up to 32.84 next.
