What's going on?

ExxonMobil and Chevron, two of the biggest oil companies in the world, both reported their quarterly financial results on Friday � and both announced a huge increase in profits relative to last year thanks to the rise in the oil price.

What does this mean?

It was during the first quarter of 2016 that the oil price hits its lowest level in more than a decade. Since then, the oil price has almost doubled and so it should be no surprise that profits at oil companies are moving much higher as well. Exxon managed to double its profits versus a year ago and Chevron, which at that time was losing money, made almost $3 billion of profit. While the higher oil price has certainly helped, huge cost cuts by the companies have also played a part.

Why should I care?

For the markets: The precariousness of the oil price is a big risk for oil companies.

A major reason the oil price rose over the past year was the agreement by OPEC (a group of oil-producing states) to limit its production (and less supply typically leads to a higher price). But that deal is set to expire soon, and it may not be extended. Without a new OPEC deal that keeps the supply limitations in place, the oil price is at a greater risk of a significant selloff, which would put a big dent in oil companies� recoveries.


The bigger picture: Oil companies have been borrowing more and more money.

The major oil companies typically pay their shareholders a relatively large annual cash payment (i.e. a dividend). However, for the past few years, they�ve had to borrow more money in order to maintain such high dividends. With profits back on track, they shouldn�t have to keep increasing their borrowing at the same rate. But it has still made oil companies a riskier investment: if their profits fall, they are likely to borrow more and/or to lower their dividend payments.