Exxon-Chevron Tie-Up Not as Crazy as It Sounds

As over-the-top as the idea sounds—it could be the largest corporate merger ever—it isn’t inconceivable. Today’s oil market conditions look similar to those that made oil megamergers possible starting in the late 1990s when the Asian financial crisis led to a sudden collapse in global growth and oil demand. The resulting glut considerably weakened energy giants, leading to cost cuts and paving the way for big tie-ups. Both Covid-19 and Asia’s crisis knocked about a third off the average Brent price in 2020 and 1998, respectively.

That backdrop was what preceded Exxon’s merger with Mobil in 1999, number one and two in the U.S. at the time. Chevron’s 2001 nuptials with Texaco brought together what were then numbers two and three. Combined, Exxon and Chevron would satisfy about 4.3% of global oil demand—only a percentage point higher than ExxonMobil’s share a year after their merger.

It is unclear how close the deal is to materializing. Antitrust concerns aside, Chevron investors might be cautious about merging with Exxon as it faces scrutiny from securities regulators and activist investors.

But the news is a clear sign of how weakened the energy markets have become. A combination would bring at least four of Standard Oil’s pieces back together. At the height of its dominance, Standard Oil controlled 95% of U.S. refining—long before anyone realized there were vast petroleum deposits in places like Saudi Arabia, Iran and Venezuela and decades before state companies became the real “Big Oil.”

The mere fact that Exxon and Chevron are considering the once unthinkable shows that their executives grasp the enormousness of the oil market’s challenges.

Write to Jinjoo Lee at jinjoo.lee@wsj.com