HOUSTON (Reuters) -U.S. oil major Chevron Corp on Friday swung to a surprise $11 million fourth-quarter loss as low margins on fuel, acquisition costs and foreign currency effects overwhelmed improved drilling results. Oil companies are expected to benefit from a rebound in oil and gas prices after a one-two punch of falling demand and prices put the industry in a tailspin last year. But as Chevron’s final quarter of 2020 showed, pandemic-related travel restrictions continue to hammer fuel demand. “While we’re optimistic about vaccines and getting on a pathway to recovery, we’re not there right now,” Chevron Chief Financial Officer Pierre Breber said in an interview. “We still have an economy that’s operating well below capacity. We still have inventory levels that are high.” The company reported a $5.54 billion full-year loss, its first since 2016, compared with earnings of $2.92 billion in 2019. Chevron was quick to respond to the downturn last year, cutting up to 15% of its global workforce, slashing new project outlays by more than a third, and pulling back on oil production goals. It used a relatively strong financial position to acquire Noble Energy for $4.2 billion in stock and the assumption of $8 billion in debt. U.S. President Joe Biden’s decision to suspend oil and gas leasing on federal lands will not “get in our way anytime soon,” Breber said. “We’ve got other places where we can take those dollars” if federal policies become onerous, Chevron Chief Executive Officer Michael Wirth said on a call with analysts. Restrictive policies could eventually “push energy production outside the country,” Breber said. The second-largest U.S. oil producer reported an adjusted loss of $11 million, or 1 cent per share, compared with a profit of $2.8 billion, or $1.49 per share, a year earlier. The net loss was $665 million including acquisition costs, the impact of foreign exchange and pension payouts. Results missed analysts’ expectations for a profit of 7 cents a share, according to data from Refinitiv IBES. Chevron’s shares were down about 3.3% to $86.09 around midday. The refining business was “very weak,” said Anish Kapadia, director of energy at London-based Palissy Advisors. However, the company had “good underlying cash flow from operations in a still-tough environment.” Improved oil and gas prices and a 6% increase in output from the Noble purchase boosted Chevron’s oil and gas earnings to $501 million, compared with a loss of $6.7 billion a year earlier. The gain came as Chevron sold its oil for about $40 per barrel, up from $39 in the prior quarter and down from $57 a year earlier. The company’s refining and chemical business reported a fourth-quarter loss of $338 million compared with a profit of $672 million in the prior year. Fuel sales fell 11% from the year-ago period as COVID-19 travel restrictions continued to reduce demand. Its closely watched cash flow from operations was $2.3 billion, short of covering the $2.5 billion dividend and $3.2 billion in capital spending for the period. Chevron will operate five drilling rigs in the Permian shale basin this year, down from about 20 a year ago, and does not expect to boost activity there this year, Breber said. “We don’t think our shareholders want us to grow production in a world that has excess supplies,” Breber said. Rivals Exxon Mobil, ConocoPhillips, Royal Dutch Shell and BP Plc report financial results next week.