Big Oil's Outperformance Tested as Crude Prices Plummet

Global oil giants achieved a remarkable feat last year, seeing their stock prices climb even as crude oil benchmarks like West Texas Intermediate (WTI) and Brent tumbled by roughly 20%. Companies including Exxon Mobil Corp., Chevron Corp., Shell PLC, TotalEnergies SE, and BP Plc posted share gains ranging from 4% to 18%, a stark contrast to historical trends where low commodity prices spelled trouble for "Big Oil."

Rockefeller's Legacy: A New Era of Cost Control

The current resilience echoes the stringent cost discipline of oil titan John D. Rockefeller. His Standard Oil Co. employed meticulous attention to detail, such as optimizing solder use to seal kerosene cans, saving thousands of dollars annually. Today's executives mirror this ethos, implementing aggressive cost-saving measures, including significant workforce reductions. Chevron and Shell, for instance, have announced plans to cut staff by as much as 20%.

This focus on operational efficiency and reduced capital expenditure has allowed companies to buffer the impact of lower oil prices. By curbing spending on both daily operations and new projects, these energy majors have maintained profitability.

Financial Resilience Tested

The data highlights this shift: the top five international oil companies are projected to generate nearly $96 billion in free cash flow for 2025, even with WTI averaging just under $65 a barrel. This figure rivals the $99-a-barrel WTI average achieved during the commodity boom of 2008. Strong free cash flow enables executives to enhance dividends and continue substantial share buyback programs, appealing to investors even amid depressed commodity prices.

Furthermore, the sector's cyclical downturn follows a period of strong commodity prices from 2021 to 2023, during which majors significantly reduced debt. With the exception of BP Plc, most leading oil companies have the capacity to re-leverage their balance sheets to support shareholder returns, up to a certain limit.

Signs of Weakness Emerge

However, this outperformance may prove unsustainable. Early 2025 data shows WTI crude averaging $58 a barrel, considerably lower than the nearly $75 average seen in the first two weeks of 2025. This trend suggests a potential decline in the sector's free cash flow generation.

Compounding these challenges are concurrently falling natural gas prices and weakened refining and chemical margins. Taken together, these factors make it increasingly difficult for "Big Oil" to maintain its superior performance against the commodity market if oil prices remain stagnant, as anticipated by many analysts. A market reckoning appears increasingly probable.