Cheaper Oil to Hurt Chevron's Fourth Quarter

HOUSTON -- Chevron(CVX Quote) said the huge drop in crude prices at the end of 2008 will be a big blow to its fourth-quarter earnings, a sharp reversal from the favorable market conditions that fueled record profits earlier in the year.

After peaking above $147 a barrel in July, oil prices spent the remainder of 2008 falling dramatically. When the fourth quarter began Oct. 1, crude was trading at around $100 a barrel. Three months later, on Dec. 31, it settled at $44.60, a decline of nearly 60%.

During the first two months of the fourth quarter, Chevron said its crude oil price averaged $61.70 per barrel, a 45% drop from the $112.22 a barrel it realized for the entire third quarter.

Natural gas prices for the first two months of the fourth quarter also were far lower, averaging $4.98 for 1,000 cubic feet, compared with $8.64 during the third quarter.

The San Ramon, Calif.-based oil giant provided the guidance in an overview of market conditions for the October-December period.

Chevron, the second-largest U.S. oil company, said fourth-quarter earnings at its exploration and production, or upstream, arm are expected to benefit by about $625 million from an asset-exchange transaction. It also expects to incur one-time charges related to last year's hurricanes, though lower than similar charges in the third quarter.

Chevron also noted that margins for refined products such as gasoline declined markedly from the third quarter to the fourth.

With prices swinging downward, Chevron and its rivals simply haven't been making as much money as they did during the spring and summer.