Key Highlights

● Refining out-earned production at Exxon for the first time in at least six years.

● Third-quarter Earnings excluding items were $17.51 billion, or $4.23 a share.

● Chevron's Downstream earnings of $4.93 billion neared its Upstream earnings of $5.70 billion.

● Exxon rose 2.09% and Chevron 1.70% premarket, helping keep Dow futures flat.

For the first time in at least six years, Exxon Mobil (NYSE:XOM) earned more from refining crude into fuel than from pumping it out of the ground, according to media reports on Friday. The shift is a vivid sign of how war-related disruptions are reshaping the Economics of the oil industry.

Exxon reported third-quarter GAAP earnings of $15.41 billion, or $3.72 a share, and earnings excluding identified items of $17.51 billion, or $4.23 a share, according to its release. That compares with a pre-week consensus of $3.96 listed in an earnings calendar, though the basis of that estimate was not specified.

Why refining margins exploded

Refiners are benefiting from a squeeze in fuel-making capacity. Attacks on refineries in Saudi Arabia and Russia have cut capacity, and the effective closure of the Strait of Hormuz has also pushed margins higher, according to market reports. Exxon and Chevron (NYSE:CVX) ran their US refineries near full capacity during the quarter.

Overnight, Yemen's Houthis claimed attacks on several Saudi sites, including Ras Tanura, the Rabigh refinery and an Aramco Facility at Abqaiq, according to a market report citing wire coverage. Iran said four tankers struck mines in the Strait of Hormuz.

The pattern is not unique to Exxon. Chevron's downstream earnings reached $4.93 billion in the third quarter, close to its upstream earnings of $5.70 billion, and market reports said Chevron's downstream result was its highest over the same multiyear period. In Europe, BP (NYSE:BP)'s Underlying Profit of $8.46 billion beat a $7.33 billion consensus on refining margins, according to market commentary.

Exxon's production actually dipped slightly, to 4,496 thousand barrels of oil equivalent per day from 4,514 in the second quarter. Chevron's output also slipped, to 3,980 thousand barrels a day from 4,086 a year earlier. That makes the refining windfall all the more important to this quarter's results.

"We're increasing production while improving efficiency," Exxon CEO Darren Woods said in the release, adding that the company "continued to rise to the challenge of meeting global energy needs."

The Dow impact, risks and what to watch

Exxon and Chevron are both components of the Dow Jones Industrial Average. Exxon was up 2.09% and Chevron 1.70% premarket as of 7:41 a.m. ET, according to a premarket table, helping keep Dow futures roughly flat at 52,521 even as Nasdaq-100 futures slid about 2.6%, according to market quotes around 8 a.m.

Because the Dow is price-weighted, gains in high-priced components carry more influence. Exxon's prior close was $183.29, according to market data. Energy, along with health care, financials and utilities, is among the sectors set for solid gains in October, according to media reports, while the Nasdaq Composite was down about 2.5% for the month through Thursday's close.

Refining margins driven by Supply shocks can reverse quickly. A diplomatic breakthrough between Washington and Tehran, which Qatari mediators are pursuing, could ease tanker traffic and pull margins lower. Conversely, an escalation that damages US Gulf Coast operations or prompts export restrictions would create different problems.

Demand is another question. Persistently high fuel prices can weigh on consumption, and the Federal Reserve is in a tightening cycle that could slow the economy.

Watch whether energy holds its premarket gains after the open and how crude trades into Sunday's OPEC+ subgroup meeting, which is expected to decide December output. Refining spreads and any news from the Strait of Hormuz will be key to whether this unusual earnings mix persists into the fourth quarter.