Free Trial

Shell's Production Outlook: Not as Bad as Expected?

Shell oil stock price: Image of oil barrels labeled with the Shell logo

Key Points

  • As the oil sector outperformed the markets during the past year, oil stocks are at risk of decline. 
  • Shell and Exxon have warned investors about lower expected earnings for the coming quarter, driven by lower oil and natural gas prices. 
  • Analyst ratings may point to targets beyond the possibility of a lousy quarter, suggesting investors consider the next few quarters.
  • 5 stocks we like better than Exxon Mobil.

VanEck Oil Services ETF NYSEARCA: OIH has delivered investors a nearly 43.4% performance over the past 12 months, outperforming the broader market by as much as 21.2% during the same period. 

The inflationary environments experienced in the United States economy and higher-than-normal volatility experienced in Brent Crude oil and WTI prices drive performance gaps. This ETF is a leading indicator to the rest of the oil industry, considering that it holds companies whose revenues come directly from contracts based on the current oil stock price. Looking at the value chain, one step down could be the SPDR S&P Oil & Gas Exploration & Production ETF NYSEARCA: XOP.

This second ETF holds a different set of businesses whose financials also depend on the oil price at the time. However, its effects on the bottom-line earnings are seen roughly three months after significant fluctuations. Companies like Exxon Mobil NYSE: XOM and Shell NYSE: SHEL are part of this ETF, which can be a lagging indicator of the broader industry. As traders and investors digest production volume swings from OPEC and mixed economic data from the world's largest economies, it is imperative to understand the sector, including the Exxon and Shell oil stock price landscape before considering buying or reducing exposure to the sector.

Warning Headlines

Exxon Mobil released an SEC 8-K filing earlier this week, announcing its second quarter 2023 earnings estimates or considerations. That stock is down by as much as 5.3% since the announcement, as earnings should be severely affected by current and future conditions in the underlying production and pricing landscape. 

According to the filing, Exxon anticipates lower oil and gas prices negatively affecting its bottom-line earnings by as much as $3.3 billion to $4.1 billion. Rising natural gas prices might have offset these declines; however, as natural gas cools down, Exxon is facing a possibly more significant decline.

Considering that this space in the oil and gas industry shares a systematic risk, Shell has followed its peer into announcing a similarly dire outlook concerning earnings. Shell executives are pointing to a potential decline in earnings for the next quarter, also driven by declines and lack of volatility in oil and gas prices. This stock, however, is up by as much as 2.5% even after announcing a rhyming outlook negativity. It would be beneficial for investors to understand why these "twin" stocks, both warning of potential headwinds in the future, are seeing their stock prices diverge on the news. 

Friday marked the United States non-farm payrolls report, which came in lower than expected, bullish for stocks and bearish for oil for the following reasons. Lower jobs data could lead the FED to consider a slowdown in their interest rate hiking pace, considering that unemployment may begin heading north. 

Oil prices may suffer as a result, given that a slowing underlying economy will cause a significant slowdown in oil demand. Management may be correct in announcing potential risks, and the jobs data may be the sole reason behind Shell's rally today.

Market Outlook 

Exxon and Shell suffer from the lowest dividend yields seen in a long time, which may be a proxy for two things to follow. One scenario is that the underlying financials in the industry are better than management points out, allowing for a dividend increase and thus adjusting underlying valuations. 

The second scenario would imply a sufficiently large stock price decline, which will raise the dividend yield (assuming the dividend payout remains the same). According to analyst ratings, Exxon and Shell both share consensus double-digit upside potential from today's prices. Therefore, a steep decline may not be the likely scenario after all.

As food for thought, investors can think of the upcoming quarter as a temporary risk, keeping in mind that oil prices typically rise to slow down an inflationary economy. As oil prices rise, fewer businesses keep up activity and investment due to rising input costs, not just in crude but everything derived from it. Therefore, these lower production outlooks by both Exxon and Chevron can offset a rising oil price, which would not affect earnings as negatively as pointed out in reports.

→ First JFK… next Elon? (From Porter & Company) (Ad)

Should you invest $1,000 in Exxon Mobil right now?

Before you consider Exxon Mobil, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Exxon Mobil wasn't on the list.

While Exxon Mobil currently has a "Moderate Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

10 "Recession Proof" Stocks That Will Thrive in Any Market Cover

Which stocks are likely to thrive in today's challenging market? Click the link below and we'll send you MarketBeat's list of ten stocks that will drive in any economic environment.

Get This Free Report
Gabriel Osorio-Mazilli
About The Author

Gabriel Osorio-Mazilli

Contributing Author

Value Stocks, Asian Markets, Macro Economics

Like this article? Share it with a colleague.

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
VanEck Oil Services ETF (OIH)N/A$312.65+1.8%0.92%18.96Moderate Buy$307.26
SPDR S&P Oil & Gas Exploration & Production ETF (XOP)N/A$148.57-0.1%2.25%4.95Moderate Buy$148.67
Shell (SHEL)
3.6845 of 5 stars
$66.40+0.6%4.14%13.66Buy$82.00
Exxon Mobil (XOM)
3.9291 of 5 stars
$122.00+0.2%3.25%15.19Moderate Buy$130.21
Compare These Stocks  Add These Stocks to My Watchlist 


Featured Articles and Offers

SMCI Stock: Is a Rebound Coming?

SMCI Stock: Is a Rebound Coming?

Super Micro Computer (SMCI) has faced volatility this month due to a delayed annual report and a high short interest. But has SMCI reached its bottom yet?

Recent Videos

NVIDIA Earnings: Can Blackwell Propel the Stock to $200+ in 2025?
These Top Stocks in 2024 Will Continue to be Big Winners in 2025
’Best Report in 2 Years’: NVIDIA Earnings Crushes Expectations Again

Stock Lists

All Stock Lists

Investing Tools

Calendars and Tools

Search Headlines