In early December, S&P 500 giant Exxon Mobil (XOM) going against the grain of the industry and boosting its capital expenditure outlook. The industry's recent strategy has been towards protecting balance sheets and channeling money back into stock buybacks 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+ continued to rein in production. This comes as Chevron (CVX) is dialing back its projections – and as President-elect Donald Trump says more oil production will be a top priority for the next four years.
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On December 11, Exxon Mobil announced planned capital expenditures of between $27 billion and $29 billion for 2025 — slightly changed from the 2024 target of $28 billion. For the period 2026 to 2030, Exxon predicted spending between $28 billion and $33 billion. The company said it would increase production modestly, by about 18%, by the end of the decade, to 5.4 million barrels of oil equivalent per day.
In a Holding Pattern
Meanwhile, the Organization of the Petroleum Exporting Countries in December cut its demand forecast for 2025. The oil producing cartel continued to cap production in an effort to support prices. Key OPEC+ partner Russia said it produced less than its reduced quota for the month.
On December 5, Chevron lowered its 2025 capex budget to between $14.5 billion and $15.5 billion, down from its previous $15.5 billion to $16.5 billion in planned spending for 2024. The US supermajor is awaiting an opinion on its acquisition Hess (HES), expected in the first half of the year. Exxon, which operates the offshore Guyana project on which Chevron's Hess deal hinges, claims it had the right of first bid, before Chevron took over.
“One (Exxon) is growing and the other two (Chevron and OPEC) are in a holding pattern right now,” Peter McNally, energy analyst for Third Bridge, told IBD. “All Chevron has is the Hess deal.”
Exxon has grown primarily by focusing on expanding its Permian Basin assets in the US Its acquisition of Pioneer Natural Resources, announced in October, was a $59.5 billion step in that direction.
S&P 500: Oil Prices AND OPEC+
The Pioneer deal and the other moves by OPEC+ and the two major US producers come as US oil prices end up flat for 2024. That was after turning slightly higher but mostly lower during the year. That led to huge profits for energy companies and poor performance for oil-related stocks.
Exxon's earnings fell an average of 15% over the past four quarters. They are predicted to continue to record double-digit declines through Q2 2025. Chevron has seen an average decline of 26% over the period, although analysts see earnings performance improving starting in the first quarter.
Together, the 22 stocks in the Oil & Gas Integration tracked by IBD industry group gained 6% for 2024. Meanwhile, the 15 stocks in the International Oil and Gas Exploration and Production group declined 15% for the year.
Meanwhile, the US exploration and production group didn't exactly climb 13% – still well behind the S&P 500's pace of more than 23% last year.
In China, authorities struggled to sustain the lackluster economy throughout 2024. But its weak performance continued to undermine oil demand forecasts.
Analysts now project that China, the world's largest oil importer, may be able to lift economic growth back to its 5% target if it increases its national debt. But even at that, the continued popularity of electric vehicles is cutting into the demand for oil. Recently, its largest oil company, China Petroleum and Chemical Corporation, or Sinopec, predicted that that country's oil consumption would peak by 2027.
Oil Jumps On Russia Sanctions News
West Texas Intermediate futures jumped to nearly $78 a barrel on Friday. The increase came after Reuters reported chatter in India's refining sector about more sanctions against Russia. For now, the analyst consensus still has an average price forecast of $69.15 per barrel for oil in 2025, according to FactSet. The average annual WTI price target, according to FactSet, does not climb back above $70 a barrel until 2027.
That is well below the $80 to $90 level where OPEC is most comfortable. However, oil producers in the United States and abroad understand that $65 to $70 leaves plenty of room for profit, analysts said.
“The price is right and (OPEC+) knows it could be a lot worse,” said Third Bridge's McNally.
S&P Global Insights wrote on December 11 that OPEC+ has been in a difficult situation for several years. It has not succeeded in achieving its objectives of relatively high prices and increased production. Oil production runs stronger in the Americas (mainly the United States, but also Canada, Guyana and Brazil). On the demand side, demand growth is slowing, due to EVs, renewables and China's malice.
As a result, OPEC+ has cut oil supply four times since 2022, only to see prices continue to weaken across the board.
“The fundamental thing that has changed since the start of OPEC+ is the improved balance sheet of US oil and gas (companies),” said McNally.
In an 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 such as the Exxons, the Chevrons and ConocoPhillips, he said.
Trump Wants More Production
President-elect Trump is making oil and natural gas prices and production a focus of his administration.
“I told the European Union that they have to make up their huge deficit with the US by buying our oil and gas on a large scale. Otherwise, it's tariffs all the way,” Trump posted to Truth Social on December 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 they would see a 50% reduction in costs within a year of his inauguration in January 2025.
He has not given any specific details, and it remains unclear how he intends to achieve this — especially at a time when producers have learned to prioritize their balance sheets. That means limiting supply as long as prices remain low.
“Price is going to drive activity – not what the president says, not what the regulations are,” McNally said. “While the industry whines and complains about the slow pace of permits, US oil production has continued to grow and they are going to respond to the price.”
“Unless Trump does something to make the price of oil go up, I don't really see how changing regulations is going to stimulate more activity,” he added.
Natural Gas And AI
While Trump, OPEC+, China and the US supermajors are sending mixed oil production and demand messages, it seems to be all systems go when it comes to natural gas. Natural gas prices, boosted by demand for electricity from data centers that process artificial intelligence operations and bitcoin mining, ended 2024 28% higher.
Prices have continued to climb, rising more than 5% on Friday to just below $4 per million British thermal unit – the highest level since December 2022. US natural gas prices are forecast to average $3.32 per mBtu in 2025. S&P Global Commodity Insights sees US natural gas prices averaging more than $4 in 2025 after two years averaging below $3.
In the United States, McKinsey & Co. predicts that data center demand for electricity will grow from around 4% currently, as a percentage of total electrical power demand, to 11%-to-12% by 2030.
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US natural gas consumption grew 1% to reach a new annual peak of 89.4 billion cubic feet per day in 2023. Consumption continued to grow in the first nine months of 2024, according to the latest US Energy Information Administration (EIA) report. The 1% increase in natural gas use in 2023 was driven by a 6.7% increase in use in the electric power sector, the sector that uses the largest natural gas, according to the EIA
“Fossil fuel prices in 2025 will be shaped by how markets adjust to increased supply and generally soft demand growth,” S&P Global Commodity Insights co-head Mark Eramo said in a December 11 forecast.
S&P 500: GE Vernova Poised to Take Advantage
Meanwhile, the expectation is GE Vernova (GEV), this year's top S&P 500 performer, will take advantage of an anticipated jump in electricity demand as tech companies pour resources into data centers.
At its December 10 investor day event, the company revised 2025 revenue guidance, expecting $36 billion to $37 billion, narrowed from its previous range of $35 billion to $37 billion. In addition, GEV also anticipates high single-digit revenue growth in 2028, up from its previous mid-single-digit growth projections.
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William Blair analyst Jed Dorsheimer declared in a recent note that natural gas will be the “workhorse for near-term and medium-term electric load growth for AI data center construction” in 2025. The analyst added that S&P 500 component GE Vernova, which manufactures the turbines to drive natural gas generators, is “the biggest beneficiary of the move back to natural gas.”
GE Vernova CEO 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 Vernova's outlook,” McNally said, referring to the importance of natural gas. “As a user of natural gas you are in a good position. It is a huge resource in the United States that continues to become more and more available.”
Follow Kit Norton on X @KitNorton for more attention.
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