Big Oil In Focus This Week (IYE)

by on October 29, 2014

U.S. equities have experienced several volatile trading sessions over the last few weeks, as global economic concerns and this season’s earnings results continue to weigh heavily on investors. So far, over 200 of the S&P 500 companies have reported their quarterly results, putting the benchmark on track to log in a 5.6% growth in earnings for the third quarter, well above the estimated 4.5% [see also ETF Spotlight: U.S. Market Neutral Anti-Beta Fund (BTAL)].

And while the next few days will see several big-name earnings reports, many will be turning their attention to the energy sector, as a handful of Big Oil companies post their quarterly results.

Big Oil on Tapoil

The following oil & gas firms will be reporting results within the next few days:

  • Phillips 66 (PSX) is slated to post its results on Wednesday before the opening bell. Analyst expect PSX to report earnings of $1.75 per share and revenue of $78.4 billion. In Q2 2014, the company missed analyst estimates.
  • ConocoPhillips (COP) will report its earnings on Thursday before the open. COP is expected to log in earnings of $1.20 per share and revenue of $13.63 billion. Last quarter, COP reported results in line with expectations.
  • Marathon Petroleum Corporation (MPC) will also post its results on Thursday before the open. Analysts expect MPC to post earnings of $2.29 per share and revenue of $26.83 billion. MPC beat earnings estimates in its last quarter.
  • Chevron Corp (CVX) is slated to post its results on Friday before the opening bell. Analysts expect CVX to report earnings of $2.56 per share and revenue of $52.97 billion. In Q2 2014, the company beat earnings estimates, but missed on revenue. 
  • Exxon Mobil (XOM) will report its results on Friday before the open. XOM is expected to report earnings of $1.73 per share and revenue of $105.51 billion for the quarter. The firm beat earnings estimates by $0.19 in its last reported quarter.

Falling Oil Prices Raise Concerns

Oil and gasoline prices have dropped significantly; oil futures are roughly 25% lower than their July peak, and have recently hit several multiyear lows. A quick look at the United States Oil Fund’s (USO) year-to-date performance depicts this decline:

USO

So far in 2014, oil futures have fallen approximately 13%. Many analysts attribute lower prices to a combination of geopolitical tensions in both the Middle East and in Ukraine, as well as relatively weaker demand and high supply levels. According to analysts at Goldman Sachs, West Texas Intermediate crude (WTI) may dip as low as $75 for most of 2015.

Consequently, several big-names in the oil & gas industry have already felt the impacts of falling prices.

ETFs To Watch

As big oil reports this week, be sure to keep a close eye on the following funds, each of which have significant exposure to these companies [see also How to Build an Income Portfolio with ETFs: Insights from David Fabian]:

  • U.S. Energy ETF (IYE)
  • Energy Select Sector SPDR (XLE)
  • MSCI Energy Index ETF (FENY)
  • Energy ETF (VDE)

Investors may also want to pay close attention to the U.S. Oil & Gas Exploration & Production ETF (IEO) and the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), as these funds are also closely correlated with oil futures. 

The Bottom Line

While the earnings results from Big Oil this week may have material impact on several oil & gas equity ETFs, it is important to keep in mind that broad economic issues, geopolitical tensions, and changes in oil prices may also affect the performance of these funds. 

Follow me on Twitter @DPylypczak

Disclosure: No positions at time of writing.