Exxon net income -46%, Chevron -37% — but the cause was derivative-timing losses on hedges, and adjusted EPS for both topped consensus.
Exxon Mobil and Chevron, the two largest U.S. oil majors, reported Q1 2026 results on May 1. The headline numbers were rough. Exxon's GAAP net income was $4.18 billion, down 46% from $7.71 billion a year earlier; Chevron's was $2.21 billion, down about 37%.
Look behind the numbers and the picture changes. Adjusted EPS came in at $1.16 for Exxon (vs. ~$1.00 LSEG consensus) and $1.41 for Chevron (vs. ~$0.92 consensus) — both well above the Street. Shares of both rose pre-market.
Why hedges turned into a headwind
The driver was derivative-timing losses. With oil low at the start of the year, both companies followed standard practice and set volatility hedges. Then on February 28, the U.S.–Israel strike on Iran sent oil surging.
Under the hedge accounting structure, gains can only be booked when physical crude is actually delivered. With the Strait of Hormuz effectively closed because of the Iran war, physical delivery itself stalled. Oil rose, but the hedge gains weren't recognized — only quarter-end mark-to-market losses on the derivatives showed up.
Exxon recorded roughly $3.9 billion of losses from "unfavorable derivative-timing effects." Chevron took roughly $2.9 billion of timing losses for the same reason. These reverse automatically once physical delivery resumes. The energy price spike actually added $1.7 billion to Q1 earnings, but production disruption from the Iran war cost $400 million.
Production disruption is also in play
Production effects are not trivial. Exxon disclosed a roughly $400 million Q1 production impact from facilities affected by the Hormuz closure. Chevron, with less Middle East exposure, still saw production fall roughly 5% sequentially — partly offset by gains from a larger stake in a new Guyana field.
"Better to come" — H2 expectations
Real earnings should land starting Q2. Brent moved from roughly $70–75 to a peak of $126 after the Iran war, a 65–80% surge. U.S. average gasoline is now $4.39 per gallon, up 47% since the war began.
Analysts expect Q2 earnings to roughly double for Exxon and triple for Chevron year-on-year, with full-year earnings up 46% and 56% respectively. That would bring the best results since 2022, when the Ukraine war pushed U.S. average gasoline to a record $5.02.
It's hard to give guidance on how long the Strait of Hormuz stays closed. That is the core challenge in providing forward guidance.
Neil Hansen, Exxon Mobil CFO
