Investors Concerned Over Big Oil's Share Buybacks Amid Falling Crude Prices and Trump's Tariff Announcements

US • Business • 04/28 13:02
Investors Concerned Over Big Oil's Share Buybacks Amid Falling Crude Prices and Trump's Tariff Announcements

Investors are concerned about the future of share buyback programs by major oil companies like ExxonMobil, Chevron, and BP due to falling crude oil prices and economic uncertainty from President Trump's global tariff announcements. Analysts expect these companies may reduce buybacks, impacting Wall Street's expectations for Big Oil in 2025. Oil prices have dropped significantly, with Brent crude falling from $74.98 to around $66 per barrel. The IMF has cut the U.S. growth forecast, and OPEC+ is increasing production, adding pressure on the market. Companies may need to adjust their strategies to maintain shareholder returns.

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04/28 13:02

Investors Concerned Over Big Oil's Share Buybacks Amid Falling Crude Prices and Trump's Tariff Announcements

Investors are concerned about the future of share buyback programs by major oil companies like ExxonMobil, Chevron, and BP due to falling crude oil prices and economic uncertainty from President Trump's global tariff announcements. Analysts expect these companies may reduce buybacks, impacting Wall Street's expectations for Big Oil in 2025. Oil prices have dropped significantly, with Brent crude falling from $74.98 to around $66 per barrel. The IMF has cut the U.S. growth forecast, and OPEC+ is increasing production, adding pressure on the market. Companies may need to adjust their strategies to maintain shareholder returns.

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Investor Focus Shifts from Profits to Cash Return Strategies

When ExxonMobil and Chevron release their first-quarter results this week, investors will be less focused on the companies' profits and more on their plans for dividends and share repurchases. Analysts from Scotiabank and other firms have noted that the quarterly results are likely to be overshadowed by the forward outlook, given the recent commodity market turmoil.

Big Oil has made returning cash to investors through dividends and share repurchases a strategic priority. However, the sharp decline in oil prices—driven by Trump's tariff policies—has raised questions about the sustainability of these programs. Brent crude prices, which averaged $74.98 per barrel in the first quarter, have since fallen to around $66 per barrel. The U.S. Energy Information Administration (EIA) has revised its 2025 Brent price forecast downward from $74.22 to $67.87 per barrel, and its 2026 forecast from $68.47 to $61.48 per barrel.

Tariffs Trigger Oil Price Slump and Economic Fears

The oil market's volatility intensified after President Trump announced sweeping tariffs on April 2, 2025. West Texas Intermediate (WTI) crude prices fell from just above $71 per barrel to $59.58 within a week, before stabilizing slightly above $60 following a temporary pause in tariff implementation. Analysts have drawn a direct link between Trump's tariff policies and the sharp decline in oil prices, noting that the tariffs have depressed U.S. economic activity and weakened global oil demand.

The International Monetary Fund (IMF) recently cut its U.S. growth forecast for 2025 from 2.7% to 1.8%, citing the impact of tariffs. Meanwhile, OPEC+ announced it would accelerate the unwinding of production cuts, adding further pressure to an already fragile market.

Big Oil's Buyback Plans Under Scrutiny

Chevron and ExxonMobil, the two largest U.S. oil producers, have both emphasized their commitment to shareholder returns. ExxonMobil has stated it plans to repurchase $20 billion in shares annually through 2026, while Chevron previously guided annual share repurchases between $10 billion and $20 billion.

However, analysts now expect both companies to adjust their buyback programs if weak oil prices persist. Bank of America Global Research forecasts that Chevron will repurchase $11 billion in shares this year, at the low end of its guidance, assuming a Brent price of $60 per barrel. ExxonMobil is projected to buy back about $13.5 billion, below its $20 billion target.

Chevron requires a Brent price of $95 per barrel to fully cover its dividends and buybacks, compared to $88 for ExxonMobil, according to RBC Capital Markets. Both companies can cover dividends alone with oil prices in the mid-$50s, but maintaining aggressive buyback programs would be challenging under current market conditions.

BP, which has been underperforming relative to peers, may also be forced to trim its buyback pace. The UK-based company is already in the process of cutting up to $3 billion in costs and laying off up to 8,000 employees.

Cost-Cutting and Capital Discipline

Facing a 12% decline in oil prices so far this year, Big Oil firms are exploring ways to preserve cash. Italy’s Eni, for example, recently reduced its capital expenditure plans for 2025 while maintaining its shareholder distribution commitments. Analysts suggest that ExxonMobil and Chevron are unlikely to announce immediate cuts to capital expenditures but could do so in future quarters.

Jason Gabelman, an analyst at TD Cowen, noted that spending on shale assets and green energy transition projects would be the most likely areas for cuts. Shale production can be quickly ramped up or down, and energy transition efforts are not yet material to the companies' core businesses. Approximately 65% of Chevron’s 2025 capital expenditures are allocated to these two segments, compared to less than 50% for ExxonMobil.

Market Reactions and Analyst Perspectives

Investor sentiment has shifted notably in recent weeks. Analysts from at least three firms agree that ExxonMobil is in a stronger position to maintain dividends and share repurchases, citing its surplus cash and efforts to lower production costs. ExxonMobil reported paying $16.7 billion in dividends last year and has reiterated its $20 billion annual buyback target through 2026.

Meanwhile, Chevron’s higher breakeven price for covering dividends and buybacks has made it more vulnerable to sustained low oil prices. Analysts from four firms have indicated that Chevron may reduce buybacks if current market conditions persist.

Paul Cheng of Scotiabank summarized the prevailing investor mood, writing, "We think the quarterly results will be overshadowed by the forward outlook given the commodity market turmoil."

References

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