Shipping interruptions, production losses, hedging liquidations! Oil and gas prices skyrocketing, but the giants are "swallowing bitter water".

Rising oil and gas prices triggered by the Middle East conflict may seem like good news for the world's largest energy companies at first glance, but production disruptions, shipping blockades, and hedging losses in the region make the reality much more complex than it appears. Exxon Mobil Corporation (XOM.US) and Chevron Corporation (CVX.US) each saw about a 6% decrease in global production in the first quarter, while Shell (SHEL.US) saw a 5% decrease in natural gas production, primarily due to the virtual closure of the Strait of Hormuz. This situation occurred after a month of ongoing conflict in the region, indicating that if this waterway remains closed for an extended period, the impact could be even more severe. Jefferies Financial Group Inc. analyst Lloyd Byrne bluntly stated, "The situation in the Middle East has made this quarter chaotic." The closure of the Strait of Hormuz has raised concerns about global supply shortages and resulted in a surge in oil prices in March. With Brent crude oil prices reaching over $112 per barrel, the highest level in four years, and market speculation that fuel shortages in Asia will further push up prices in the coming months, the stock prices of the three major oil giants have hit historic highs in recent weeks. However, production losses and shipping restrictions mean that these super oil companies are unable to fully benefit from the increase in prices and expose their vulnerability in the face of long-term trade restrictions in the Persian Gulf. After disclosing derivative losses totaling approximately $7 billion in market value, analysts quickly revised down their forecasts for the first-quarter performance of Exxon Mobil Corporation and Chevron Corporation. With a significant price increase in March - Brent crude oil futures prices surged over 50% in less than three weeks - the two companies were forced to recognize unrealized losses related to hedges on goods that are still weeks away from delivery. Exxon Mobil Corporation CFO Neil Hansen stated in a statement, "This accounting treatment typically occurs long before the physical products in question are sold, and these impacts will gradually diminish over time." Analyst Byrne wrote that Exxon Mobil Corporation's performance guidance indicates that profits will be "significantly below" market expectations, primarily due to these so-called timing impacts. Approximately 20% of Exxon Mobil Corporation's production comes from Qatar and the UAE. Despite a ceasefire being announced between the United States and Iran this week, these two countries are still severely affected by the interruption of shipping in the Strait of Hormuz. Furthermore, last month's Iranian missile strikes damaged two of Exxon Mobil Corporation's liquefied natural gas production lines in Qatar, affecting about 3% of global production, with repairs possibly taking several years. Shell's gas-to-liquid plant also suffered damage in a similar attack. The significant volatility this quarter prompted Chevron Corporation to take the unusual step of releasing performance guidance early on Thursday, allowing investors to understand the effects of the war on the company's operations three weeks before the official performance announcement. Barclays analysts wrote in a report that the scale of upstream production shut-ins "exceeded our prior expectations," but "realized price advantages are sufficient to offset this impact." While higher oil prices are expected to eventually boost the profits of large oil companies in the long run, operational and trade interruptions in the world's most critical energy production region have made it difficult for analysts to establish forecasting models. RBC Capital Markets analysts noted, "Chaos often results in chaotic financial performance."