Is this as good as it gets for Big Oil?

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By Julia Horowitz • Monday, August 1

Good morning. In today's newsletter: Unpacking record profits for Big Oil companies. Plus, a ship carrying grain has left Ukraine, and US stocks just had their best month since 2020.

US stock futures are flat. Markets in Europe mostly ticked higher in early trading, following stocks in Asia.

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What's happening now in markets:

▼ Dow futures 32,774 (-0.16%)

▼ S&P futures 4,122 (-0.27%)

▼ Nasdaq futures 12,950 (-0.16%)

▲ US 10-year yield 2.642%

▲ Gold $1,789.90 (+0.45%)

▼ US oil $95.42 (-3.24%)

▼ Bitcoin $23,190.54 (-0.50%)

MARKET DATA AS OF 8:25 AM EDT

EARNINGS MONITOR

Is this as good as it gets for Big Oil?

The highest oil prices in a decade. A renewed government focus on energy security. Huge demand for refining crude so it can be used as fuel.

Conditions for Big Oil companies haven't looked this good in years, and ExxonMobil, Chevron and Shell plan to ride the wave as long as they can.

What's happening: Exxon made nearly $17.9 billion in profit between April and June, almost four times what it earned during the same period in 2021. Apple, for comparison, reported a profit of $19.4 billion last quarter. Chevron booked a profit of $11.6 billion, while Shell earned $11.5 billion.

"Without doubt, our delivery this quarter reflects the macroeconomic environment," Shell CEO Ben van Beurden told analysts.

Breaking it down: Market conditions were a key factor. Exxon noted that in the first quarter, average global oil prices jumped by about $22 per barrel. In the second quarter, they rose another $12, "pushing the benchmark marginally above the 10-year range."

"The strong second-quarter results reflect a tight global market environment where demand has recovered to near pre-pandemic levels and supply has attrited," Exxon CEO Darren Woods told analysts. "The situation was made worse by the events in Ukraine, which have contributed to increases in prices for crude, natural gas and refined products."

Refining businesses boomed as capacity remained limited, a problem stemming from cash-saving efforts during the early days of the pandemic. The closure rate of refineries during 2020 was three times the rate seen during the 2008 financial crisis, according to Woods.

Exxon will be able to process an additional 250,000 barrels per day in early 2023 once it expands its refinery in Beaumont, Texas.

Oil companies are confident enough in the future to keep lavishing shareholders with rewards. Shell announced $6 billion in share buybacks over the next quarter, while Chevron said it intends to repurchase up to $15 billion in stock annually.

But this past quarter may have been the high point. Oil prices dropped more than 4% in July as global recession fears took hold, which reduced forecasts for demand.

Oil prices fell on Monday after China, the world's top crude importer, released data showing a weakening manufacturing sector.

Demand for refineries could also pull back as drivers, worried about inflation, consume less gasoline.

Coming up: The Organization of the Oil Exporting Countries, better known as OPEC, meets later this week to decide on its strategy for September. The United States has called for Gulf states including Saudi Arabia to ramp up their crude production, which could drive prices down further. But it's not clear the group will accede.

"OPEC doesn't control oil prices, but it practices what is called 'tuning the markets' in terms of supply and demand," Haitham al-Ghais, OPEC's new secretary general, said in an interview published Sunday by Kuwait's Alrai newspaper. He said oil markets are currently "very volatile and turbulent."

VOICES

'Drill, baby, drill' is back as gas crunch looms

"You're just seeing this 180-degree turn around the world."

OSWALD CLINT, OIL ANALYST

Read more from CNN Business.

EYE ON EUROPE

First grain ship leaves Ukraine port after safe-passage deal

The first grain ship to leave Ukraine's port of Odesa under a UN-brokered deal to ensure safe passage through the Black Sea departed on Monday morning, raising hopes that much-needed supplies could reach the global market and ease pressure on food prices.

Details, details: Officials from Ukraine and Turkey confirmed the ship — which is carrying more than 26,000 metric tons of corn to Tripoli, Lebanon — has left port. It's also moving on satellite vessel tracker MarineTraffic.

A total of 5 million metric tons of grain is expected to leave Ukraine each month under an agreement signed in Istanbul last month, which was hailed as a diplomatic breakthrough.

Ukraine is one of the world's top grain exporters. But Russian troops had been blocking key ports, trapping millions of metric tons inside the country.

Wheat prices hit an all-time high in March shortly after Russia's invasion. They've since fallen more than 40%, in part due to investor anticipation of a safe-passage deal. Corn prices have dropped roughly 12% since the beginning of March.

But questions about whether Russia will stick to the agreement loom as it continues its campaign of military aggression.

"This is such an important step but it is a first step," the UK's ambassador to Ukraine tweeted on Monday. "[Russia] now needs to honor their side of this deal and let grain ships pass safely. And they need to stop burning and appropriating [Ukrainian] grain."

UP NEXT

Avis and Pinterest report earnings after US markets close.

Also today: The ISM Manufacturing Index for July arrives at 10 a.m. ET.

Coming tomorrow: Earnings from BP, Caterpillar, Marriott, Uber, Airbnb, PayPal and Starbucks.

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FINAL WORD

US stocks just had their best month since 2020

US stocks just had a blockbuster July, jumping more than 9% to notch their best month since November 2020.

But you'd be forgiven if you didn't feel like the market was experiencing a huge rally. The CNN Business Fear & Greed Index, which tracks investor sentiment, remains in "fear" territory. Investors are still obsessed with inflation, interest rate hikes from central banks and, crucially, the threat of a recession, both globally and in the United States.

"There are still quite a lot of commentators describing this as a bear-market rally," strategists at the Dutch bank ING noted on Monday.

Still, there are signs some players are willing to put more money on the table. The S&P 500 rose during four out of five trading sessions last week. Bank of America, which tracks fund flows, observed the largest inflows into US stocks in six weeks.

Investors have decided that the Federal Reserve may go less hard on raising interest rates than previously expected. Yet there's plenty of debate about whether this is the correct read of the Fed's messaging last week.

"Investors clearly chose to cherry-pick [Fed Chair Jerome] Powell's dovish comments and ignore his hawkish ones," Ed Yardeni, president of Yardeni Research, wrote in a note to clients.