Oil companies entered earnings season with higher commodity prices at their backs, but investors are still watching one issue more closely than almost anything else: spending discipline.
In the Morgan Stanley note given to TheStreet, analyst Devin McDermott and his team said oil exploration and production companies beat consensus production by 1% and cash flow by 7% in the first quarter, while capex came in 2% below expectations. Even with those stronger results, the group fell about 8% month-to-date alongside a 9% decline in oil prices, lagging the broader market by roughly 10 percentage points.
Oil stocks face a stricter market
Morgan Stanley’s main takeaway was that the market still has little tolerance for higher spending. Most oil-focused companies left 2026 activity plans unchanged despite stronger commodity prices, while some raised production outlooks without increasing spending by pointing to efficiency gains or a shift toward oilier assets.
The weaker reaction came for companies that raised activity or spending. Morgan Stanley pointed to Diamondback Energy, ConocoPhillips and Permian Resources as examples, with Diamondback adding a completion crew, ConocoPhillips raising 2026 capex by $250 million, and Permian Resources guiding toward the upper half of its prior capex range.
That creates a difficult setup for oil producers. Higher prices can support free cash flow, debt reduction and buybacks, but the market is still pushing companies to prove they can grow without letting capital budgets creep higher.
Chevron keeps its plan steady
Chevron stood out in the Morgan Stanley note because it kept its 2026 production and capital spending outlook unchanged. The bank said Chevron still expects 2026 total production of 3.98 million to 4.10 million barrels of oil equivalent per day and reiterated capital spending of $18 billion to $19 billion.
The production outlook includes a full year of Hess assets, Permian volumes above 1 million barrels of oil equivalent per day, project ramp-ups in the Gulf of America and Eastern Mediterranean, and a full year of output from the Tengizchevroil expansion. Morgan Stanley also said Chevron has very limited exposure to the Middle East region and raised its outlook for affiliate distributions.
More Oil
- Iran responds to U.S. ceasefire proposal. What next for oil?
- Chevron CEO sends blunt message on oil, economy
- Oil’s wild $126 price spike sends investors a blunt message
Chevron’s own first-quarter results gave investors another reason to focus on cash returns. The company reported adjusted earnings of $2.8 billion, returned $6.0 billion to shareholders, and said worldwide production increased 15% from a year earlier, while U.S. production rose 24%.
Morgan Stanley has an Overweight rating on Chevron and listed a $212 price target in the note, compared with the $184.74 price used in its comp table. That implied about 15% upside at the time of the report, while Chevron’s unchanged spending plan gives the stock a cleaner capital-discipline story than some peers.
ExxonMobil carries a different risk
ExxonMobil also remains one of Morgan Stanley’s preferred U.S. majors, although its setup is more complicated because of Middle East exposure. In the Morgan Stanley note given to TheStreet, the firm said ExxonMobil has the most direct exposure to operations in the region among the U.S. majors.
The company did not formally change its full-year 2026 production guidance of about 4.9 million barrels of oil equivalent per day. Morgan Stanley said management quantified a 750,000-barrel-per-day impact from the conflict, implying second-quarter production of 4.1 million to 4.3 million barrels of oil equivalent per day if the Strait of Hormuz remains closed for the full quarter.
Morgan Stanley still sees room for earnings upside. The firm said it sees 15% upside to consensus earnings per share for the balance of the year, helped by stronger margins in ExxonMobil’s large refining and chemicals operations.
ExxonMobil’s first-quarter results showed the size of its cash-return program. The company reported first-quarter earnings of $4.2 billion, or $1.00 per share, and shareholder distributions of $9.2 billion, including $4.3 billion of dividends and $4.9 billion of share repurchases.
Morgan Stanley still sees value
Morgan Stanley’s broader preference remains tilted toward majors and E&Ps with positive rate of change. The bank said oil producers are pricing in a long-run WTI price of about $67 a barrel, roughly 19% below the 12-month strip, leaving room for upside if commodity prices remain stronger than the market is discounting.
For Chevron, ExxonMobil and the broader oil-stock group, the next test is whether companies can keep production steady, protect shareholder returns and avoid the spending concerns that have weighed on the sector. Morgan Stanley’s note suggests investors are still willing to reward energy stocks, but only when the cash-flow story comes with discipline.
Related: Goldman Sachs gives Chevron stock price new target after earnings
