Unlike last month when the price fell below zero, oil prices have seen some signs of life in May.
However, now the question is how sustainable this potential recovery is. So we took two biggest oil companies to get a better idea of the overall market.
Clash of Titans
If we look on a market cap basis, ExxonMobil Corporation (NYSE: XOM) is the biggest oil and gas company in the world whereas Royal Dutch Shell (NYSE: RDS-A)(NYSE: RDS-B) leads the way in revenue. But despite both being massive companies, they are also both massive underperformers as they have both lost about half of their value in the past five years.
If we look at dividends, Exxon is a dividend aristocrat as it upped its payout annually for the last 37 straight years. But considering the current climate, Exxon could consider following Shell's late April surprising decision to cut dividends. This is Shell's first dividend cut since World War II that took Shell from being the highest yielder among the five oil majors to the lowest, causing its share price to tumble.
Oversupply And Low Demand
The main problem remains low prices for oil, natural gas and refined products due to global oversupply and lack of demand due to COVID-19.
In its most recent earnings report, which included the initial days of the global pandemic, Exxon posted a much wider Q1 loss, though this was mostly due to noncash write-downs on the value of the company's oil inventories.
But if we look at revenue, Exxon was only down 11.6% whereas that of Shell dropped 28.3% year-over-year. Adjusted net income, which strips out special items, was even worse for Shell, falling -47.2% compared to ExxonMobil's -4.1%. Operating cash flows are nearly identical once stripped down for the inventory decrease, $7.3 billion for Exxon and $7.4 billion for Shell. But we should keep in mind that this was in a quarter in which the average per-barrel price of Brent Crude was $50 whereas in the second quarter it dropped to low $30s.
Although Exxon seems better situated to weather the storm as it also has a lower debt load, both companies are working on cost cuts both for their capital and operational budgets and the results of these efforts are yet to be seen. Despite the efforts made to stabilize the oil market, the reality that it is still a mess that is not going to vanish overnight as both of its biggest players are looking to years of underperformance ahead.
This article is not a press release and is contributed by Ivana Popovic who is a verified independent journalist for IAMNewswire. It should not be construed as investment advice at any time please read the full disclosure . Ivana Popovic does not hold any position in the mentioned companies. Press Releases – If you are looking for full Press release distribution contact: firstname.lastname@example.org Contributors – IAM Newswire accepts pitches. If you're interested in becoming an IAM journalist contact: email@example.com Questions about this release can be send to firstname.lastname@example.org