(Adds context, details on international operations)
HOUSTON, Feb 2 (Reuters) - Exxon Mobil Corp and Chevron Corp posted rare quarterly earnings misses on Friday as cost cuts and rising oil prices failed to offset weakness in international refining operations, sending shares of both companies plunging.
Investors were expecting the companies to deliver sharp gains due to stronger crude prices and a rebounding global economy. But excluding U.S. tax benefits, both fell short of expectations, casting a cloud over the U.S. oil industry just days after the nation's output surpassed a milestone 10 million barrels per day.
Rising expenses hit Exxon, Chevron and Royal Dutch Shell last quarter. All reported lower cash flow from operations in the fourth quarter from the previous three months despite higher oil and gas prices. Reasons varied, but included weaker refining profits and spending on capital expenses.
Shell, the world's second-largest publicly traded oil company after Exxon, overtook its bigger rival for the first time, producing about 6 percent more cash last year than Exxon's $33.2 billion.
Exxon's stock dropped 5.5 percent and Chevron's shares were off more than 3 percent in afternoon trading. It was the biggest one-day drop in Exxon's shares since August 2011. Both companies are part of the Dow Jones Industrial Average, which was down344 points or 1.3 percent.
"It was a pair of disappointing results from both companies," said Brian Youngberg, an oil industry analyst at Edward Jones. "Is refining something to be concerned about as we move through 2018? Will that be an offset to those higher oil prices?"
Exxon's international refining and chemical profits struggled in the fourth quarter, and Chevron's non-U.S. refining profit fell sharply, fueling concerns that a weak spot could be emerging in the industry.
Chevron said higher oil prices, up 25 percent in 2017, and currency impacts hurt refining margins by $500 million in the quarter.
Both companies benefited from recent U.S. tax reform. Non-cash tax gains were $5.94 billion at Exxon and $2 billion at Chevron.
Excluding that tax change and other one-time items, Exxon earned 88 cents per share. By that measure, analysts expected earnings of $1.04 per share, according to Thomson Reuters I/B/E/S.
Exxon's quarterly production fell 3 percent to 4 million barrels of oil equivalent per day, with the only gain coming from the United States. But its U.S. production business was unprofitable for the third year in a row.
At Chevron, production rose 2.6 percent, but excluding the tax change and other one-time items, the company earned 72 cents per share. By that measure, analysts expected earnings of $1.22 per share, according to Thomson Reuters I/B/E/S.
Mike Wirth, in his second day as Chevron's chief executive, told investors on a conference call that the refining weakness was a one-time issue rather than a systemic problem. He also vowed to keep a lid on costs across the company as oil prices rise.
"I expect us to maintain capital cost and discipline," Wirth said. "I intend to lead Chevron to win in any environment."
France's Total SA and the United Kingdom's BP Plc plan to post quarterly results later this month. BP has vowed to not change its spending plans because of rising global oil prices and only to approve projects that can make money with prices below $40 a barrel.
(Reporting by Ernest Scheyder; Editing by Nick Zieminski)