Exxon and Chevron Missed the Oil Rally Their Hedges Paid For

Exxon and Chevron Missed the Oil Rally Their Hedges Paid For A combined $6.8 billion in hedging charges erased much of the gain from the steepest crude price surge in years, leaving US majors trailing European rivals by a wide margin. Trans Mountain Corp. will hold an open season for an additional 72,000 barrels a day of export capacity on its expanded Alberta-to-coast pipeline, Bloomberg reported, as producers move to lock in supply routes that bypass the Persian Gulf altogether.⁵ The urgency behind that decision is straightforward. ICE Brent crude front-month has risen 85% since January, a surge that accelerated sharply after military action on February 28 triggered the de facto closure of the Strait of Hormuz, according to the U.S. Energy Information Administration. Western Canadian crude flowing through Vancouver to Asian buyers offers a route with no Hormuz exposure, and the open season suggests demand for that optionality is real.^4,1 The companies most exposed to crude prices, however, have not been the biggest beneficiaries. ExxonMobil shares are down 2% since the war began; Chevron's are down 1%. Shell has gained 4%, while TotalEnergies, BP, and Eni are up between 14% and 17%, according to the Economist. The divergence is not about reserves or production. It is about hedging.³ Chevron took a $2.9 billion charge tied to its hedging book in the first quarter. Exxon absorbed $3.9 billion in similar losses. Both companies had locked in price protection that became a liability the moment crude broke higher. The losses swamped operating gains from higher realisations. Chevron reported Q1 net income of $2.2 billion, down 37% from a year earlier; Exxon posted $4.2 billion, down 46%.³ European majors carry lighter hedging programmes, leaving more of their production exposed to spot markets. That posture looked aggressive when Brent was drifting toward $60 at the start of the year. After the Hormuz closure, it became a significant structural advantage. The Trans Mountain expansion is part of a broader rerouting of investment away from supply chains that run through Middle East choke points. Wood Mackenzie estimates that upstream oil-and-gas investment by the seven largest Western companies in Africa will reach $64 billion between 2026 and 2030, up from $41 billion in the comparable prior period — driven in part by the search for barrels that can reach markets without passing through the Gulf.² An open season on Trans Mountain is a commercial solicitation, not a construction start. The company is testing whether shippers will commit to the additional 72,000 b/d on a long-term basis before it moves forward. If the Strait of Hormuz reopens and the risk premium in crude prices collapses, that calculus changes fast.⁵ For Exxon and Chevron, the more immediate question is whether the hedging programme extends into the second half of the year. Analyst expectations for Q2 earnings are materially higher than Q1 given where spot prices have been trading, according to reporting on the companies.⁴ A repeat of first-quarter hedging charges against an 85% crude rally would make the gap between US and European majors harder to explain to shareholders. Chevron and Exxon combined gave back $6.8 billion in a single quarter to maintain price floors that, in the event, were never tested. The strategic rationale for that hedging — protecting cash flow during periods of low oil prices — made sense when Brent was expected to average $60 for the year. The market had other ideas.³ Whether Trans Mountain's open season fills quickly will say something about how durable producers think the current supply disruption is. Strong demand for locked-in western Canadian capacity suggests the industry is not betting on a swift resolution in the Gulf. Weak uptake would indicate the opposite.