Margins at oil firms are tied heavily to the price of oil. In the first half of last year, it spiked to a 13-year high. Chevron’s profit jumped, too. But in the second part of the year, the price of a barrel of Brent crude, the benchmark, fell by nearly a quarter. That came at a cost. Each barrel Chevron was producing brought in about $20 of profit, some 40% less than it had in the quarter earlier.

Fast forward to now, and Chevron is still pumping less and earning less, but that degradation to earnings is not quite as bad. Oil prices have continued to fall, but the drop in profit per barrel is less dramatic than before – just 8%. That’s a narrower decline relative to the drop in price.
It suggests that oil companies have found a way to steady their drills in the face of sustained lower prices. Chevron and rivals kept their spending discipline during the boom. Now, they are keeping the balance between that and pumping, too. The U.S. oil rig count is at a 16-month low according to Goldman Sachs. As long as restraint holds the upper hand, so will Chevron’s profit. (By Robert Cyran)
(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)
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