Exxon Mobil (XOM) shares fell nearly 2% on Wednesday after the company warned of a sharp decline in fourth-quarter earnings due to weaker refining margins and subdued returns across its operations. The oil giant expects earnings to drop by $1.75 billion compared to the prior quarter, reflecting a challenging environment as demand volatility pressures profitability. Refining margins, which were buoyed by a post-pandemic demand surge, have declined amid increased global refining capacity and pricing pressures.

In the third quarter, Exxon reported a 5% year-over-year decline in profits, mirroring a broader trend in the energy sector, with Chevron's (CVX) earnings tumbling 21% over the same period. Analysts expect Exxon to deliver a fourth-quarter profit of $1.76 per share, down from $2.48 a year earlier. RBC (RBC) Capital Markets analyst Biraj Borkhataria noted that Exxon's earnings update aligns with broader revisions for independent refiners and majors heavily exposed to refining operations, likely weighing on its shares in the near term.

Market Overview:

• Exxon expects fourth-quarter earnings to drop $1.75 billion from the prior quarter.
• Weak refining margins and demand volatility weigh on profitability across the oil sector.
• Exxon shares underperformed the S&P 500 (SPY) in 2024, rising 7.6% compared to the index's 23.3% gain.

• Refining margins decline due to increased global capacity and waning post-pandemic demand.
• Analysts forecast fourth-quarter earnings of $1.76 per share, down from $2.48 a year earlier.
• Exxon maintains a lower P/E ratio (13.56) compared to Chevron (16.43), signaling better valuation.

• Exxon's upcoming earnings report will provide clarity on its refining and overall performance.
• Global demand recovery and capacity adjustments could influence refining margins in 2025.
• Oil majors may focus on efficiency improvements to navigate ongoing pricing pressures.

• Exxon's lower P/E ratio of 13.56 compared to Chevron's 16.43 suggests a more attractive valuation, providing potential upside for long-term investors.
• The company remains one of the world's largest refiners with a capacity of 4.5 million barrels per day, positioning it to benefit from any recovery in refining margins.
• Exxon's focus on operational efficiency and strategic investments could help mitigate pricing pressures and improve profitability over time.
• Global demand recovery in 2025, coupled with capacity adjustments, may stabilize refining margins and support earnings growth.
• Exxon's diversified operations and strong cash flow generation provide resilience against short-term market challenges.

• Weaker refining margins and subdued returns across operations are expected to weigh on fourth-quarter earnings, with profits projected to drop $1.75 billion from the prior quarter.
• Analysts forecast a significant decline in earnings per share (EPS) to $1.76, down from $2.48 a year earlier, reflecting ongoing profitability challenges.
• Exxon shares underperformed the S&P 500 in 2024, rising only 7.6% compared to the index's 23.3% gain, indicating weaker investor confidence.
• Increased global refining capacity and waning post-pandemic demand create persistent headwinds for refining profitability across the oil sector.
• Short-term market sentiment may remain negative as investors await clarity from Exxon's upcoming earnings report and broader energy sector trends.

Exxon's warning underscores the challenges facing oil majors as refining profitability wanes and global demand stabilizes post-pandemic. While the company remains one of the world's largest refiners with a capacity of 4.5 million barrels per day, its lower P/E ratio compared to peers like Chevron suggests a relatively attractive investment opportunity. However, the current earnings outlook may temper near-term investor sentiment.

As the energy market adapts to shifting dynamics, Exxon's focus on operational efficiency and strategic investments will be pivotal. The fourth-quarter earnings report will be closely watched for signs of recovery in refining margins and broader profitability trends, providing insight into how the company plans to navigate persistent market challenges.