Outstanding trading performance combined with minimal production disruption, BP outperforms ExxonMobil

British Petroleum (BP), which has long lagged behind its peers, is now leveraging "exceptionally strong" trading profits brought by the Iran war to suddenly become the best-performing stock among major oil companies. Meanwhile, former industry benchmark ExxonMobil is underperforming due to a large portion of its production trapped inside the Strait of Hormuz.

Since the outbreak of war on February 28, BP's share price has risen about 20% in total, while ExxonMobil has fallen about 1%.

The core reason for this divergence is: BP disclosed this month that it expects its trading performance to be "exceptional," and its oil production is only mildly affected by the conflict in the Middle East;

ExxonMobil, on the other hand, has about one-fifth of its global output trapped inside the Strait of Hormuz, and a major LNG integrated facility in which it holds a stake has been hit by Iranian missiles, with repairs possibly taking years.

Even though international oil prices have surged by more than 45% during the war, breaking past $100 per barrel, oil company shares have not risen in tandem—the crude oil futures curve shows a significant decline, reflecting market expectations that the strait will eventually reopen.

BP will report its financials this Tuesday, followed by France's TotalEnergies SE on Wednesday, ExxonMobil and Chevron on Friday, and Shell is scheduled for May 7. According to analyst data compiled by Bloomberg, the five supermajors are expected to report combined profits of $19.2 billion this quarter, up about 3% from the previous quarter.

US giants hit by production losses, BP shines in trading performance

The geopolitical conflict has affected companies' production to varying degrees. According to Raymond James data, ExxonMobil’s Gulf region production affected by the war is about five times that of Chevron. About one-fifth of ExxonMobil’s global output is trapped inside the Strait of Hormuz.

Chevron is also facing up to a 6% production loss for the quarter, although a significant portion is due to a fire at the Tengiz oilfield in Kazakhstan, unrelated to the war.

In terms of trading strategies, there are stark differences between European and American oil giants. European companies have trading divisions far larger than their US counterparts, giving them greater arbitrage ability during periods of price volatility.

BP disclosed this month that its trading performance is expected to be "exceptional," and Shell and TotalEnergies have also indicated earnings will beat expectations.

In contrast, ExxonMobil and Chevron have consistently taken conservative stances toward trading risks, typically hedging price fluctuations with derivatives once shipments are dispatched. This strategy will lead to a combined mark-to-market loss of nearly $7 billion for the two US companies in this quarter.

Low valuation and expectations for debt improvement

BP has outperformed its peers in share price this time, and its low valuation is an important factor—the lower the valuation, the greater the stock’s elasticity.

BP suspended its share buyback program earlier this year, and analysts expect the company to use its cash flow more aggressively for debt repayment, thereby granting greater financial flexibility for future oil and gas exploration and development.

According to TD Cowen analyst Jason Gabelman, Chevron may increase its buyback scale by 25% to $3.8 billion this quarter, and plans to further ramp up within the year.

ExxonMobil is expected to maintain its quarterly buyback scale at $5 billion, still the highest among the five supermajors. Despite ExxonMobil’s largest exposure in the Middle East, its oil and gas growth in the Permian Basin and Guyana, as well as its petrochemical and helium businesses, provide buffers.

New CEO returns to fossil fuel strategy, market sees turnaround prospects

O’Neill previously worked at ExxonMobil for over twenty years. Since taking charge at BP, the company’s return to a fossil fuel strategy has accelerated.

In March, BP won approval from the Trump administration for a new Gulf of Mexico project, its first since the 2010 "Deepwater Horizon" disaster. Meanwhile, BP also acquired interests in offshore blocks in Namibia, one of the world’s top exploration hotspots.

Melius Research energy analyst James West noted that there are obvious differences between stocks in the short term: “ExxonMobil has some output stranded inside the strait, while BP is benefiting from turnaround expectations brought by its new CEO.”

However, analysts remind that BP still faces challenges in turning its short-term lead into sustained outperformance. Joshua Stone, UBS Head of European Energy Equity Research, wrote in a report: “There’s no doubt that a ‘prolonged high oil price’ environment is favorable for BP, but much work remains to rebuild investor confidence.”

This week, BP will report quarterly results on Tuesday, TotalEnergies on Wednesday, ExxonMobil and Chevron on Friday, and Shell will report earnings on May 7—prior to which Shell had announced on Monday that it would acquire Canadian shale gas producer ARC Resources for $13.6 billion.

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