$100 Oil and Record Profits: Are Exxon and Chevron Cheap, or at Peak Earnings?

Crude oil is trading around $100 a barrel, up from just under $80 at the end of July, because the Strait of Hormuz has been closed on and off since the Iran conflict escalated. Exxon Mobil earned $14.5 billion in the second quarter of 2026, double the year-earlier figure; Chevron earned $12 billion, its best quarter in six years. Both stocks are up more than 30% this year. The Fed cited energy costs as a reason for last week’s rate hike. And yet, if you open either company on Investor Sam, the verdict is HOLD for Exxon and SELL for Chevron. That contradiction is not a bug. It is the single most important thing to understand about analysing a cyclical business, and this article uses it to show you how.

Why the verdict and the headlines disagree

Our verdict is computed from the most recent annual 10-K — the year ended December 2025 for both companies. That was a soft year for oil, with crude spending much of it in the $60s. So the filings the verdict reads show Exxon’s net margin slipping from 9.6% to 8.7%, its return on equity from 12.8% to 11.1%, and its operating margin from 14.3% to 12.6%. Chevron’s were worse: net margin down from 8.7% to 6.5%, return on equity from 11.6% to 6.6%, and a growth pillar score of zero. Both companies also roughly doubled their net debt during the year, Exxon from about $14 billion to $24 billion and Chevron from about $25 billion to $41 billion after closing the Hess acquisition.

Then 2026 happened. The 10-K describes a company earning trough profits at $65 oil; the share price reflects a company earning peak profits at $100 oil. Both are true. The question an investor has to answer is which one describes the next five years, and the answer is almost certainly “neither.”

Step 1 — Estimate mid-cycle earnings, not last quarter’s

The discipline for any commodity producer is to value it on what it earns at a normal price for its commodity, not the current one. The simplest method: average net income across the last full cycle — at least one good year and one bad one — and apply a sensible multiple to that.

You can build the input from the income statement tab on each company page, which shows several years of net income side by side. For Exxon, the years 2022 (a spike year, oil above $100 after the Russian invasion), 2023, 2024 and 2025 (a soft year) bracket a full cycle. Averaging them gives an earnings base that is neither the 2022–2026 peak nor the 2025 trough. Do the same for Chevron, remembering that its 2025 figures now include Hess, so the pre-acquisition years understate the size of the combined business.

Then ask a single question: at today’s share price, what multiple of mid-cycle earnings am I paying? If it is 10–12×, you are paying a historically ordinary price for a large oil major. If it is 16–18×, you are paying for $100 oil to persist. That is a judgment about Iran, not about Exxon.

Step 2 — Follow the cash, because that is what pays the dividend

Earnings at an oil major can swing with accounting charges — impairments when prices fall, reversals when they rise. Free cash flow is harder to distort. On the cash flow statement, take cash from operations and subtract capital expenditure. Then compare the result with two things: the dividend, and the buyback.

• If free cash flow covers the dividend at mid-cycle prices, the dividend is safe through a downturn. Both Exxon and Chevron have long records here, and both cut capital spending rather than dividends in 2020.
• If it covers the dividend only at $100 oil, the dividend is a bet on the Strait of Hormuz.
• Buybacks are the swing item. Oil majors buy back most aggressively at the top of the cycle, when cash is abundant and shares are dearest. That is the opposite of what a value-minded investor would do, and it is worth checking whether the 2026 buyback pace is being set by 2026 prices.

Step 3 — Read the balance sheet, because the debt is new

The most significant change in both companies’ 2025 filings is not on the income statement. Exxon’s net debt rose from about $14 billion to $24 billion; Chevron’s from about $25 billion to $41 billion. Relative to cash profit that is still comfortable — roughly 0.35× and 1.0× net debt to EBITDA respectively, and Exxon covers its interest 69 times over — but Chevron’s interest coverage fell from 47× to 17× in a single year. In a week when the 10-year Treasury crossed 5%, that trend matters more than the level. A company that added $16 billion of debt to buy Hess will be refinancing some of it into a materially higher-rate market. Our verdict’s financial-health pillar scores both at 70, which is fair for now and lower than it was.

The balance sheet tab shows the year-over-year change directly. If you own either name, the debt footnote in the 10-K — maturities by year, fixed versus floating — is the section to read this quarter. Our note on re-checking every stock after the Fed hike walks through what to look for.

Step 4 — Know what oil price you are implicitly forecasting

Every oil major discloses, in the market-risk section of its 10-K (Item 7A) or in its earnings materials, roughly how much a $1-per-barrel change in crude moves its annual earnings. You do not need to memorise the figure; you need to use it once. Take the current share price, work backward through a reasonable multiple, and ask what oil price is required to produce the earnings that justify it. If the answer is $95, you are betting on the blockade. If it is $70, you are getting the spike for free.

This is also where the two companies diverge. Exxon’s integrated model — refining and chemicals alongside production — dampens the swing, because refining margins often move inversely to crude. Chevron is more upstream-weighted, especially after Hess, and so more sensitive to the crude price in both directions. Its momentum pillar of 89 and growth pillar of 0 are the same fact seen from two angles: it is the purer bet on oil, up when oil is up and exposed when it is not.

What the verdict gets right, and what it cannot see

The HOLD and SELL ratings are doing their job. They are telling you that on the last full year of audited numbers, neither company was growing, both were taking on debt, and Chevron’s returns on capital had halved. That is a warning against paying a peak-cycle price on the assumption that the peak is permanent, and it is exactly the warning a cyclical deserves at $100 oil.

What the verdict cannot see is the second quarter of 2026, because it reads annual filings. When the FY2026 10-K arrives early next year, both companies’ quality and growth pillars will leap, their P/E ratios will collapse, and the verdicts will very likely flip to BUY — at which point the cyclical trap will be operating in the other direction. The disciplined reading is to ignore both extremes and value the businesses on the middle of the cycle, which is what Steps 1 through 4 are for.

The macro overlay: oil, the Fed and the next three months

Oil at $100 is why headline inflation sits at 3.4% when core is 2.4%, why the Fed “lowered the bar” for a hike after holding in July, and why 16 of 18 committee members expect another one this year. That cuts both ways for energy shareholders. Sustained high crude is good for these companies’ near-term earnings and bad for the valuation of everything else in your portfolio, because it keeps rates higher for longer. A de-escalation that reopens Hormuz would likely knock $15–20 off the barrel and both stocks with it, while helping the rest of the market. Owning an oil major in September 2026 is, in part, a hedge against the rest of your holdings. That is a legitimate reason to own one. It is a different reason from “the earnings are great,” and it argues for sizing the position as a hedge rather than a conviction bet.

Frequently asked questions

Why is Chevron rated SELL when it just reported its best quarter in six years?

Because the verdict is computed from the FY2025 annual filing, in which Chevron’s net margin, return on equity and interest coverage all fell sharply and net debt rose by $16 billion. The second-quarter 2026 result is not in an annual filing yet. The rating is a statement about the audited record, not a forecast of the next quarter, and the pillar breakdown on the company page shows exactly which figures drive it.

Is a P/E of 17 for Exxon cheap or expensive?

On 2025 trough earnings, 17.6× is neither; it is the multiple you would expect for a major at the bottom of the cycle. On annualised 2026 earnings the multiple is far lower, and that low number is the one to distrust, because it assumes $100 oil continues. Value the company on average earnings across the cycle and the answer will land somewhere in between.

Where do the figures come from?

Balance-sheet, income-statement and ratio figures are from the FY2025 10-K filings of Exxon Mobil and Chevron on SEC EDGAR, as computed on Investor Sam. Second-quarter 2026 earnings are from the companies’ own results announcements on July 31, 2026. Oil prices are from public market data.

Sources

• Exxon Mobil Corporation and Chevron Corporation — Form 10-K for fiscal year 2025, via SEC EDGAR; ratios as computed on Investor Sam.
• Exxon Mobil and Chevron — second-quarter 2026 earnings releases, July 31, 2026.
• Federal Reserve Board — FOMC statement, September 16, 2026; U.S. Bureau of Labor Statistics — Consumer Price Index, August 2026.
• Crude oil price history, 2025–2026, from public market data.