Oil companies at risk. Will Exxon Mobil and Chevron keep their fat dividend?

The world oil market is bursting at the seams. Too much is being extracted, supplies are running out and this is squeezing oil company profits. Will the big oil companies, whose fortunes and dividends depend on the price of oil, cope?

I'll tell you right from the start - they will. Such giant companies are in a strong enough financial position to cope with such a fluctuation. And there is a second factor - a reversal is likely to come soon, which will in turn help them. Why?

"At the moment, the world oil market is probably slightly oversupplied. But sometime late in the second or early in the third quarter it will flip dramatically," said analyst Rob Thummel.

Annual oil price. Source

"When the oil market is undersupplied, there is usually a positive price reaction. So we would expect oil prices to rise a bit," Thummel said.

Oil prices have been under pressure recently, despite the production cuts announced by OPEC+ last month.

OPEC+ is an organization that brings together the world's major oil producers. Its goal is to coordinate the production quotas of its members in order to influence oil prices on world markets. OPEC+ was formed by an alliance between the Organisation of Petroleum Exporting Countries (OPEC) and ten independent oil producers, including Russia. It was concluded in 2016.

OPEC member countries produce about 40% of the world's oil. Together with other producers grouped under OPEC+, they control about half of global production, giving them considerable market power.

OPEC+ holds regular meetings to agree on production levels for the next period. These agreements then significantly influence the price of oil on world markets. It also regularly monitors demand and supply trends and adjusts production quotas to balance the market. The aim is to keep the oil price at the desired level.

"The whole world is waiting for the Chinese economy to reopen. And it is gradually reopening," Thummel said. "We expect China's oil demand to grow globally and accelerate throughout the rest of this year."

Chevron $CVX

Chevron is a U.S. energy company that produces and processes crude oil and natural gas, manufactures chemicals and produces and sells refined petroleum products. It is one of the largest energy companies in the world and also one of the most valuable in the United States.

Founded in 1879, Chevron operates in more than 50 countries. It is the second largest U.S. producer of oil and natural gas after ExxonMobil. Its own production operations include producing fields across North America, Africa, Australia, South America, Asia and the Middle East. Chevron produces more than 2 million barrels of oil per day and produces 11 billion cubic feet of natural gas per day. In addition to production, it owns an extensive network of refineries in the Americas and owns the Chevron and Texaco gas station networks.

Chevron's daily production. Source

The company has 147,000 employees worldwide and is making large investments in new oil and gas resources as well as renewable technologies.

Chevron's first-quarter financial results illustrate that its ability to generate profits in the face of lower demand remains strong, even though sales are down nearly 7% year-over-year. This was mainly due to cost cuts and higher margins that boosted profits in the refining business.

While oil and gas production was down year-over-year, Chevron was able to more than offset lower energy prices with better refinery results. Profit rose to $6.57 billion even though sales fell. This ability to generate a profit even with lower production suggests that the company is effectively focusing primarily on increasing profitability.

Less effort and capital investment is not necessarily a bad way to go if the company can maintain long-term profits. Chevron is investing wisely in higher production and will also work on more sustainable energy production paths in the future. Even as oil prices fall from wartime highs, Chevron can continue to generate profits and cautiously increase production where opportunities are most plentiful.

Even Chevron continues to uncompromisingly raise its dividend. Source

Exxon Mobil $XOM

ExxonMobil is one of the largest oil companies in the world. It operates in all segments of the oil and gas industry, including upstream, midstream, petrochemical production and refining to the sale of refined and petroleum products to customers.

ExxonMobil has recently focused on reducing its business costs and improving efficiency. The company has significantly reduced its oil production costs over the past few years by focusing on its highest-return assets while taking steps to better leverage its vast scale, which allows it to generate large amounts of cash flow when oil prices are much higher. And as we know, they probably will be.

That cash flow should continue to protect ExxonMobil's dividend and its status as a dividend aristocrat. It is also good that Exxon is well positioned for a renewable future with its development into greener resources.

Exxon's dividend has been growing regardless of oil price fluctuations for 34 years. Source

Exxon Mobil's dividend yield currently stands at a paltry 3.44%. If you add in potential growth, which analysts say is +4.7% even in a worst-case scenario, you get to a level that already beats inflation.

What about you? What do you think about the oil price and its impact on the oil giants? Do you have a favourite?

Disclaimer: This is by no means an investment recommendation. It is purely my summary and analysis based on data from the internet and other sources. Investing in the financial markets is risky and everyone should invest based on their own decisions. I am just an amateur sharing my opinions.