Exxon Mobil Corp., the world's largest oil company, said quarterly profit unexpectedly dropped the most in three years on reduced gasoline output and prices.
The report spurred declines by Chevron Corp. and other energy stocks and dragged major indexes lower. Exxon shares fell 3.8 percent to $88.50 in New York Stock Exchange composite trading. The stock has the largest weighting in the Standard & Poor's 500.
Exxon's third-quarter earnings per share fell 4 cents below the average of 16 analyst estimates compiled by Bloomberg after gasoline prices in the U.S. dropped almost 6 percent. As fuel prices slumped, oil rose above $80 a barrel for the first time, squeezing the gap between crude costs and gasoline and diesel prices. Narrower margins and disruptions to fuel output on three continents outweighed Exxon's gains from record oil prices.
``High oil prices were a disaster for a company like Exxon with a large refining business because that means their raw material costs were incredibly high,'' said Robert Sweet, who helps manage $110 million, including Exxon shares, at Horizon Investment Services LLC in Hammond, Indiana. ``The pressure on profits could persist if oil prices remain high.''
Net income fell to $9.41 billion, or $1.70 a share, from $10.5 billion, or $1.77, a year earlier, Irving, Texas-based Exxon said in a statement. Revenue rose 2.8 percent to $102.3 billion, an all-time high.
The profit decline was the largest for Exxon since the first three months of 2004, when oil averaged about $35 a barrel. Eight of 12 analysts surveyed by Bloomberg said Exxon's four-year run of record annual earnings is over.
Before today's share decline, Exxon stock had climbed 20 percent this year, less than the gains by smaller rivals Marathon Oil Corp., at 28 percent, and Chevron, at 24 percent. Exxon shares have 11 buy and 12 hold ratings from analysts.
The company's refineries processed 5.58 million barrels of oil a day during the third quarter, down 3 percent from a year earlier. Refining profit dropped 27 percent to $2 billion, led by a $358 million decline from U.S. plants, Exxon said.
Third-quarter gasoline demand in the U.S. rose 0.3 percent from a year earlier to an average of 9.53 million barrels a day. Imports of the fuel rose at almost seven times that rate, creating gluts in some regions, according to the U.S. Energy Department.
Exxon follows other international oil producers in reporting lower third-quarter earnings. Houston-based ConocoPhillips last week posted a 5.2 percent decline in net income, to $3.67 billion, on narrowing refining margins.
London-based BP Plc, the world's third-biggest refiner, said Oct. 23 that its profit dropped 29 percent to $4.41 billion. Royal Dutch Shell Plc, based in The Hague and second only to Exxon in size, reported a 16 percent gain in net income, to $6.92 billion. Chevron Corp., the second-largest U.S. oil company, is scheduled to report earnings tomorrow.
Douglas Ober, who manages the $1 billion Petroleum & Resources Corp. fund in Baltimore, said he's increasing his holdings of oil shares as rising demand pushes crude prices higher. Worldwide demand is escalating so fast that seasonal price variations that formerly made oil a cyclical investment are beginning to disappear, he said.
``This year, the price has really gone straight up,'' said Ober, whose largest stock holding is Exxon. ``That's not something we used to see in the past.''
Benchmark U.S. oil futures averaged $75.15 a barrel in the third quarter, a 6.4 percent increase from a year earlier. The futures last month climbed above $90 for the first time and today set a record at $96.24.
Oil and natural-gas output from Exxon's wells dropped 2.1 percent to the equivalent of 3.92 million barrels a day, led by a 14 percent decline in crude production in Africa, the company's biggest source of oil. Lower output more than offset gains from higher crude prices, the company said.
Profit from oil and gas sales fell 3 percent to $6.3 billion. Chemicals earnings declined 11 percent to $1.2 billion as margins narrowed and sales by volume decreased.
``Exxon's still rock solid,'' said Sean Sexton, senior director of the oil and gas group at Fitch Inc., a credit-rating firm in Chicago. ``They've been posting record results so you had to expect they would come off a little bit.''
Exxon's sales last year exceeded the gross domestic products of such nations as Norway, Venezuela and South Africa. The company took in $46.3 million every 60 minutes during the third quarter.
The U.S. Supreme Court agreed on Oct. 29 to hear Exxon's appeal of a $2.5 billion punitive damage award stemming from the Exxon Valdez oil spill in Alaska's Prince William Sound 18 years ago.
The company, which traces its roots to the 1880s and John D. Rockefeller's Standard Oil Trust, wants to avoid paying what would be a record for punitive damages. With oil trading around $93 a barrel this week, $2.5 billion represents about 10 days of output from Exxon's wells.
Chief Executive Officer Rex Tillerson has expanded the search for new oil and gas deposits from the Arctic Ocean to New Zealand as part of his plan to spend more than $20 billion a year drilling new wells and building new chemicals plants. ( Bloomberg )