Exxon and Chevron Q1 EPS beat expectations but year-over-year declines sharply: hedging timing mismatch + Middle East production drop

U.S. oil majors Exxon Mobil and Chevron both released their 2026 Q1 earnings on May 1. Adjusted EPS beat expectations, but year-over-year fell sharply by 45% and 36%, respectively. Although Brent crude prices have kept rising since the outbreak of the Iran war on February 28, both companies suffered losses of up to $7 billion due to a “timing mismatch” in their hedging contracts (Exxon about $4 billion, Chevron $2.9 billion), and overall Q1 profits also fell significantly as physical asset transportation was disrupted.

Adjusted EPS beat expectations, but both year-over-year figures dropped sharply

Exxon’s adjusted EPS was $1.16, while Chevron’s was $1.41 ($0.95 expected by the market). Both companies beat Wall Street’s forecast. But behind the headline “beat” numbers is a net profit decline of 45% and 36% versus the same period last year—meaning that even though management guidance was met, the overall earnings structure is being severely eroded by the Iran war.

“Brent crude breaking through $114 should be bullish for oil companies” is a market intuition, but Q1 results show that this intuition was offset by three factors: first, the timing mismatch in hedging; second, disruptions to the physical transport of assets; and third, timing differences as input costs for related “downstream” (refining, retail) rise.

Main drags: hedging “timing mismatch” + Middle East production decline

The biggest drag for the quarter was the “timing effect” of hedging contracts. Exxon recorded hedging losses of about $4 billion, while Chevron recognized $2.9 billion in hedging-related expenses. The so-called timing mismatch refers to how the two companies had already hedged parts of their crude positions at the beginning of the year (locking in lower oil prices). After the war broke out, the prices of physical deliveries were higher than the hedged agreement prices, leading to book losses on the financial statements. However, management said this effect will reverse in later quarters—when physical cargoes arrive on time to buyers, profits will be recouped in Q2–Q3.

The second drag is a decline in physical production. Exxon estimates its assets in the UAE and Qatar were impacted by the war, with Q1 global oil-and-gas equivalent production down 6% versus Q4 2025. Reasons include disruptions to shipping through the Strait of Hormuz (some tankers reroute or delay), changes in export schedules after the UAE exited OPEC on 5/1, and maintenance scheduling for some processing facilities being postponed due to war-related risks. A drop in physical production is “real loss” and will not reverse in later quarters like the hedging timing mismatch.

What to watch next: Q2 hedging reversal, transportation recovery, UAE exit from OPEC impact

Three key things to watch next: first, the magnitude of the reversal in Q2 hedging timing mismatch—if the Iran situation is delayed or eases and physical deliveries continue to be postponed, Q2 may still maintain book losses; second, the recovery pace of shipping through the Strait of Hormuz—Japanese tankers began passing through starting 4/30, and if Iran effectively allows faster clearance, Exxon/Chevron’s production in the UAE/Qatar could rebound; third, the restructuring of the Middle East energy landscape after the UAE exited OPEC on 5/1, affecting Exxon/Chevron’s long-term pricing power in local joint venture projects.

For crypto and macro investors, the signal from this earnings report is: “Higher oil prices ≠ higher profits for oil companies.” The decisive variables are the hedging tools and the physical supply chain. While Brent breaks through $114, responses such as a sharp rise in the Japanese yen and the Fed pushing back rate cuts are continuing to compress global funding costs. The phenomenon of “prices rising but profits falling” in the energy sector may persist into Q2.

This article Exxon, Chevron Q1 EPS beats expectations but year-over-year plunges: hedging timing mismatch + Middle East production drop first appeared on Lianxin News ABMedia.