From The Wall Street Journal

The world’s largest oil companies are reporting underwhelming first- quarter profits as an array of geopolitical challenges and weaker prices around the world produced anemic results in the first three months of the year.

Sanctions in Venezuela, production cuts in Canada and weak natural-gas prices in Asia took a toll on Exxon Mobil Corp. , Chevron Corp. and other companies. The business of refining crude, one of the most reliable profit centers in the industry during the last five years, was especially hard hit.

Exxon said earnings fell in every business segment inside and outside the U.S., and the company’s refining operations—a profit machine for decades in times of high prices and low—showed a loss of $256 million in the quarter. Overall, net income dropped to $2.35 billion, the lowest in three years.

French oil giant Total SA missed earnings expectations, and Chevron said profits fell by almost a third to $2.6 billion.

In the past five years, refining crude has contributed about 34% of the combined net income of Exxon and Chevron, and in some years it made up more than 50% of profits, a bulwark against the volatility of oil.

“They’re still making money, but the fat margins have disappeared,” said Sandy Fielden, director of oil research for Morningstar Inc.

Exxon, Chevron and independent U.S. refiners were hit by production declines in Venezuela and Canada that led to scarcity and higher prices for heavy oil, which can be highly profitable to refine because it has generally been cheaper than lighter grades. Yet when the difference in those prices narrows, it typically hurts refining profits.

Exxon reported earnings per share of 55 cents, almost 50% below the first quarter last year and missing analyst expectations. Sales fell about 7% to $63.63 billion. Production rose to 3.9 million barrels of oil and gas, a 2% increase from the same period last year.

Chevron posted earnings of $1.39 a share, down from $1.90 a share in the first quarter of 2018, and also short of analyst expectations. Production rose, but Chevron’s share prices was roughly flat before markets opened as investors waited for more signals on whether the company will raise its $33 billion offer for Anadarko Petroleum Corp.

Occidental Petroleum Corp. recently launched a potential bidding war for Anadarko, making public a $38 billion offer. Before the rival offer, Chevron Chief Executive Mike Wirth said the company expects to see the transaction close at the agreed-upon price. A Chevron spokesman said the company continues to be confident the transaction will be completed.

Last year, many refiners benefitted from steeply discounted crude in West Texas and Canada, where pipeline bottlenecks left oil landlocked and depressed regional prices. But markdowns for heavier, more sulfurous oil have eroded in the wake of production curtailments in Canada and U.S. sanctions on Venezuela.

That has weighed on the margins refiners earn on each barrel of oil they process into fuels such as gasoline and diesel.

Valero Energy Corp. generated $141 million in net income during the first quarter, about 70% less than during the same period last year, the company said Thursday. Its refining margin fell to $7.97 a barrel during the quarter, from $8.65 a year ago.

“The first quarter presented us with tough market conditions,” Chief Executive Joe Gorder told investors, citing narrower oil price differentials paired with high gasoline inventories and low margins for making the fuel.

Mexico’s Maya crude, a heavier oil, traded for an average of less than $4 a barrel below Louisiana Light Sweet, a Gulf Coast benchmark, during the first quarter, according to S&P Global Platts. That compares with an average discount of about $8 a barrel during the same period last year.

Heavy Canadian oil, meanwhile, sold for an average of roughly $10 less than West Texas Intermediate during the first quarter, compared with an average discount of about $26 during the year-earlier period, S&P Global Platts data show.

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