By Bradley Olson and Selina Williams
It is looking like another lost year for the world's biggest oil companies, as profits shrank dramatically during the second quarter and they now face a volatile end to 2016 while crude prices veer again to just over $41 a barrel.
Exxon Mobil Corp. on Friday reported its quarterly profit fell 60% to the lowest level since 1999, while Chevron Corp. disclosed its biggest quarterly loss since 2001. The abysmal results capped a bad week for big Western oil companies: BP PLC and Royal Dutch Shell PLC earlier posted lousy earnings that disappointed investors.
"The second-quarter results reflected lower oil prices and our ongoing adjustment to a lower oil price world," said Chevron Chairman and Chief Executive John Watson.
The companies performed substantially worse than the decline in oil prices during the three-month period compared with a year earlier. Now, oil is flirting with bear-market territory once again as U.S. prices have fallen nearly 20% since hitting a 52-week high of $51.23 on June 8. U.S. oil ended up 1.1% Friday at $41.60 a barrel.
Fears of oversupply have gripped the market as a glut of gasoline threatens to push prices lower just as the summer driving season ends. That threatens to upend oil executives' expectations that the market would begin to come into balance over the second half of the year, stabilizing profits.
The dismal earnings news Friday pushed the market value of Exxon, which for years reigned as the world's largest publicly traded company, below that of Facebook Inc. and Amazon.com Inc. It is now sixth on the global list behind five technology firms.
Exxon, Shell, Chevron, BP and French oil major Total SA in all have cut spending by about $50 billion since 2013 and slashed tens of thousands of jobs, but it hasn't been nearly enough to avert trouble after oil prices began plunging. Exxon's net income fell to $1.7 billion and Chevron reported a loss of $1.5 billion. Shell's profit fell 93% to $239 million and BP reported a $2.25 billion loss, its third straight.
All five companies have seen their debt soar as they continue to burn though cash at an extraordinary rate. Since last year, they have failed to generate enough cash to pay dividends and invest in new production. That shortfall is on a pace to exceed $90 billion by the end of the year.
Margins have fallen precipitously in the refining business, which until recently had been the lifeline propping up the companies' bottom lines as most lost money producing oil and gas.
The results -- and the roller-coaster market for crude -- have led executives, investors and analysts to face the sobering reality that a recovery looks to be unpredictable, and arduously slow.
"The road ahead is going to be a tough one for the majors," said Gianna Bern, an associate professor of finance at the University of Notre Dame who has advised big oil companies. "The mantra has been to cut spending, reduce head count and wait for higher prices, but it doesn't look like those are coming any time soon."
Big oil companies have seen a selloff in shares this week as the extent of their losses became public.
Exxon was down 1.9% to $88.50 on Friday. Chevron fell about 3% in the past week to $101.60. BP's American depositary receipts fell 3% to $34.33 and Shell's fell 4.4% to $51.59.
Energy executives have sought to reassure shareholders, saying that prices eventually will rebound. Shell CEO Ben van Beurden said he believed the market would come back into balance in the second half of the year.
Similar predictions last year were dashed when prices dipped again after a modest rebound. Billionaire U.S. drilling pioneer Harold Hamm and executives at EOG Resources Inc., the biggest shale producer, both predicted that prices would rebound in the second half of 2015.
Instead, they fell until they hit a 13-year low in January of $27 a barrel.
Many oil and gas companies have promised to "live within cash flow" by next year, assuring investors that they will be able to generate enough money to pay for new projects and dividends without additional borrowing.
Total said it would need oil prices at $60 a barrel to reach that mark, while BP Chief Executive Bob Dudley said the company would be able to do so in 2017 if oil prices are between $50 and $55 a barrel.
So far this year, oil has sold for an average of about $40 a barrel.
"We're not counting on a recovery in oil prices," Mr. Dudley said in an interview. "Oil companies made money at $20 a barrel in the past, so if we're going to stay lower, the whole industry would rebase itself."
That goal may be more elusive than investors realize. In 2013, when global oil prices averaged about $109 a barrel, the five companies all failed to generate enough cash to meet spending commitments and dividend payments. The shortfall was $41 billion, according to a Wall Street Journal analysis.
For much of the past month, Brent crude prices have been trading well below $50 as a gasoline glut has undermined the recovery seen in the second quarter. Prompted by last year's strong profit margins in refining, most companies took advantage by ramping up output, which has heightened oversupply fears.
Earlier this week, BP said its profit margins at its refineries fell to their lowest levels since 2010. Total blamed its lower earnings on deteriorating revenues from its refineries and petrochemical plants. Exxon and Chevron saw such profits fall by almost half.
The decline in refining margins is largely due to oversupply, said Jeff Woodbury, Exxon's vice president of investor relations, in a call with investors Friday.
"Demand is growing, but the issue that we're all faced with right now are very large inventories of products," he said. "Either the demand has got to grow or the supply's got to shrink."
Some energy experts played down the carnage, saying big oil firms remain strong bets to bounce back over the long run.
"The difficult times are all a function of the low price, and while they still remain low, they will come back eventually," said Ed Hirs, a lecturer on energy economics at the University of Houston who runs a small oil and gas production firm. "This is probably the last quarter that we'll see the big oil companies trying to clean up their balance sheets."
--Anne Steele contributed to this article.
Write to Bradley Olson at Bradley.Olson@wsj.com and Selina Williams at firstname.lastname@example.org