Early in December, S&P 500 giant Exxon Mobil (XOM) went against the industry grain and boosted its capital spending outlook. The recent industry strategy has been toward defending balance sheets and directing funds back into stock repurchases and dividends.
Exxon said it would hold its purse steady through 2025, then boost its allocated spending through the end of the decade. The move came as OPEC+ continues reining in production. This comes as Chevron (CVX) dials back its projections — and as President-elect Donald Trump says more oil production will be a top priority for the next four years.
↑ X NOW PLAYING Trump Wants To Increase Tariffs On Trading Partners. What That Plan Means For Investors.On Dec. 11, Exxon Mobil announced planned capital spending of between $27 billion and $29 billion for 2025 — little changed from the 2024 target of $28 billion. For the 2026 to 2030 period, Exxon projected spending between $28 billion and $33 billion. The company said it would increase production modestly, around 18%, by the end of the decade, to 5.4 million barrels of oil equivalent per day.
Meanwhile, the Organization of Petroleum Exporting Countries in December cut its demand outlook for 2025. The oil producing cartel continued to to cap production in an effort to support prices. Key OPEC+ partner Russia said it produced below its reduced quota for the month.
Chevron on Dec. 5 whittled back its 2025 capex budget to between $14.5 billion and $15.5 billion, below its prior $15.5 billion to $16.5 billion in planned 2024 spending. The U.S. supermajor awaits judgment on its acquisition of Hess (HES), expected in the first half of the year. Exxon, which operates the offshore Guyana project upon which Chevron's Hess deal hinges, claims it has the right of first refusal, ahead of Chevron's takeover.
"One (Exxon) is growing and the other two (Chevron and OPEC) are just in a holding pattern at this point," Peter McNally, energy analyst for Third Bridge, told IBD. "Chevron just has this overhang of the Hess deal."
Exxon has primarily grown by focusing on expanding its Permian Basin assets in the U.S. Its acquisition of Pioneer Natural Resources, announced in October, was a $59.5 billion step in that direction.
The Pioneer deal and the other maneuvering by OPEC+ and the two top U.S. producers comes as U.S. oil prices ended flat for 2024. That was after swinging briefly higher but mostly lower during the year. That led to sagging profits for energy companies and a poor performance for oil-related stocks.
Exxon's earnings declined an average of 15% over the past four quarters. They are projected to continue logging double-digit declines through Q2 of 2025. Chevron averaged a 26% drop over the period, though analysts see earnings performance improving beginning in the first quarter.
Collectively, the 22 stocks in the IBD-tracked Oil & Gas-Integrated industry group gained 6% for 2024. Meanwhile, the 15 stocks in the Oil And Gas-International Exploration & Production group collectively dropped 15% for the year.
Meanwhile, the U.S. exploration and production group climbed not quite 13% — still well behind the S&P 500 pace of better than 23% last year.
In China, authorities struggled to prop up the lackluster economy throughout 2024. But its weak performance continued to undercut oil demand forecasts.
Analysts now project China, the world's largest oil importer, may be able to lift economic growth back to its 5% target if it ramps up its national debt. But even at that, the ongoing popularity of electric vehicles is cutting into oil demand. Its largest oil company, the China Petroleum and Chemical Corporation, or Sinopec, recently forecast that country's oil consumption would peak by 2027.
West Texas Intermediate futures leaped to near $78 a barrel on Friday. The increase came after Reuters reported chatter in India's refining sector about increased sanctions against Russia. For now, analyst consensus still has an average price forecast of $69.15 per barrel for oil in 2025, according to FactSet. The WTI average annual price target, according to FactSet, does not climb back above $70 per barrel until 2027.
That is well below the $80 to $90 level where OPEC is most comfortable. However, oil producers both in the U.S. and overseas understand that $65 to $70 leaves plenty of room for profit, analysts say.
"The price is OK and (OPEC+) knows that it could be a lot worse," Third Bridge's McNally said.
S&P Global Insights wrote on Dec. 11 that OPEC+ has been in a difficult position for several years. It's been unable to achieve its objectives of moderately high prices and increased production volumes. Oil production is running stronger in the Americas (primarily the U.S., but also Canada, Guyana and Brazil). On the demand side, demand growth is decelerating, due to EVs, renewable energy and China's malaise.
As a result, OPEC+ has cut oil supply four times since 2022, only to see prices continue to generally weaken.
"The fundamental thing that has changed since the start of OPEC+ is the improved balance sheet of U.S. oil and gas (companies)," McNally said.
In overview, that has enabled an aggressive bout of consolidation, which has rolled more and more of the control over production into the hands of S&P 500 supermajors like the Exxons, the Chevrons and ConocoPhillips, he says.
President-elect Trump is making oil and natural gas prices and production a focal point of his administration.
"I told the European Union that they must make up their tremendous deficit with the United States by the large scale purchase of our oil and gas. Otherwise, it is tariffs all the way," Trump posted to Truth Social on Dec. 20.
Throughout the election cycle, Trump repeated his "drill, baby, drill" slogan. During his campaign speech at Madison Square Garden in October, Trump said his oil and gas policy would "cut your energy prices in half." He told voters that within a year of his inauguration in January 2025, they'd see a 50% decrease in costs.
He has not given any specifics, and it remains unclear how he intends to accomplish this — particularly in a period when producers have learned to place priority on their balance sheets. That means limiting supply so long as prices remain low.
"Price is going to drive activity — not what the president says, not what the regulations are," McNally said. "While there is whining and moaning out of the industry about slow pace of permits, U.S. oil production has continued to grow and they're going to respond to price."
"Unless Trump does something to make the oil price go up, I don't really see how changing regulations is going to drive more activity," he added.
While Trump, OPEC+, China and the U.S. supermajors send mixed oil production and demand messages, all systems seem to be go when it comes to natural gas. Natural gas prices, buoyed by demand for electricity from data centers processing artificial intelligence and bitcoin mining operations, ended 28% higher in 2024.
Prices have continued to climb, surging more than 5% Friday to just below $4 per million British thermal unit — the highest level since December 2022. U.S. natural gas prices are projected to average $3.32 per mBtu in 2025. S&P Global Commodity Insights sees U.S. natural gas prices averaging more than $4 in 2025 after two years averaging below $3.
In the U.S., McKinsey & Co. projects that data center demand for electricity will grow from around 4% currently, as a percentage of total demand for electrical power, to 11%-to-12% by 2030.
U.S. natural gas consumption grew 1% to reach a new annual high of 89.4 billion cubic feet per day in 2023. Consumption continued growing in the first nine months of 2024, according to the latest U.S. Energy Information Administration (EIA) report. The 1% increase in natural gas consumption in 2023 was driven by a 6.7% increase in consumption in the electric power sector, the largest natural gas consuming sector, according to the EIA
"Fossil fuel prices in 2025 will be shaped by how markets adjust to growing supply and generally soft demand growth," copresident of S&P Global Commodity Insights Mark Eramo said in a Dec. 11 outlook.
Meanwhile, the expectation is GE Vernova (GEV), a top S&P 500 performer this year, will take advantage of the forecast jump in electrical demand as technology companies pour resources into data centers.
At its Dec. 10 investor day event, the company revised 2025 revenue guidance, expecting $36 billion to $37 billion, narrowed from its previous $35 billion to $37 billion range. In addition, GEV also forecasts high-single digit revenue growth in 2028, up from its previous mid-single digit growth projections.
William Blair analyst Jed Dorsheimer proclaimed in a recent note that natural gas will be the "workhorse for near- and medium-term electricity load growth for the AI data-center build out" in 2025. The analyst added that S&P 500 component GE Vernova, which produces the turbines to drive natural gas-fired generators, is the "largest beneficiary of the shift back to natural gas."
GE Vernova Chief Executive Scott Strazik told Bloomberg in early December that Big Tech companies are reserving gas turbines, for 5-gigawatt data center campuses.
"We would agree with the Vernova outlook," McNally said, referring to the importance of natural gas. "As a consumer of natural gas you are in a good position. It is an enormous resource in the U.S. that continues to get bigger and more available."
Please follow Kit Norton on X @KitNorton for more coverage.
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