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Exxon Mobil Corporation
), with its enviable asset base that covers the whole globe and
numerous subsectors of the energy marketplace, is as bellwether as
Mike Mozart via Flickr (Modified)
But, lately, it hasn't exactly been acting like the steady Eddie
blue chip it used to be.
The rout in
has made Exxon Mobil feel more like a rollercoaster at Cedar
Point. This week, XOM seems to be on an upswing in the
The integrated energy giant has certainly been putting a "tiger
in the tank" of investor's portfolios during the last few weeks.
Over the last three months, Exxon stock has managed to gain
17%. That's huge considering how much XOM has been hit during the
recent oil price downturn.
The question for investors now is whether Exxon Mobil has
the goods to keep those gains going and if XOM shares are
worth the ride.
XOM Gains on Crude Oil
Even the largest of energy stocks still are at the mercy of
, or at least these days they are. After all, when you're in the
business of selling a commodity or products based off a commodity,
your underlying profits are totally driven by the price of that
So traders have been using oil prices as a reason to buy and
sell various energy stocks, including integrated giants like
And lately, crude oil has been taking a sharp turn upwards.
Supply cuts and reduced production across the U.S. and in
several other key regions has potentially put a bottom in for the
commodity. After reaching 11-year lows of around $26 per barrel,
crude has finally begun to move upwards as the glut is less
Today, prices for Brent crude oil are above $41 per barrel. West
Texas Intermediate prices have experienced a similar jump upwards
as rig counts in the U.S. continue to drop and the amount of oil in
storage has been reduced.
That difference is incremental to Exxon's bottom line.
According to XOM's own estimations
, every $1 drop in the average
, takes off about $350 million in its full upstream after-tax
earnings. And we've already seen this fact in action.
Last quarter, lower average oil prices resulted in a
in profits and 30% decline in revenues versus the same quarter a
year ago. In fact, the low price for crude actually resulted in XOM
losing money in its exploration and production units.
So the recent bump in crude oil prices is a reason to
Maybe Not Just Yet for Exxon Stock
We might want to tack on an asterisk onto "celebrate." The
problem is that while rising crude oil prices are great for Exxon's
long-term, the near-term still isn't rosy. And you can expect that
to be reflected in its latest earnings.
Average crude oil prices have actually dropped - by about 22% -
over the last three months when compared to previous quarter.
That's about a $10 per barrel difference. As a result, XOM's
earnings are going to tank even harder this quarter than the
Analysts are expecting XOM to only earn about 31 cents per
share. That's down from 67 cents earned last quarter and $1.17 per
share earned in the same period a year ago. That's more than a 50%
decline on a sequential basis. The firm has done some cost cutting,
but with its Exploration and Production division already losing
money on higher oil prices, it's not going to be good.
Furthermore, XOM may not be able to lean on its crutch of its
integrated operations. Despite the lower crude oil prices, crack
spreads haven't been as great as previous quarters. Refiners went
full tilt when crude was low, gasoline demand high and crack
That good deed for their bottom lines did not go unpunished.
There's now a sort glut of gasoline on the markets. As a result,
crack-spreads have been reduced.
XOM may not be able to overcome enough of the issues in its
E&P segment with refining.
Bottom Line on Exxon Mobil
While crude oil prices have started to rise - and that's good
for XOM longer term - the near term just isn't there. The recent
bump in Exxon stock maybe a little misplaced considering what has
just transpired. Investors plowing into XOM might be setting
themselves up for disappointment and potential losses when the firm
reports earnings here in a few weeks.
Any sort of miss - because of poor refining or one-items - could
exacerbate any loss even further.
So is Exxon stock a buy?
Yes, but wait a bit - at least until earnings. You're still
going to see Exxon report junk based on the previous three-month's
worth of lower prices. You'll see the good stuff start coming down
the pike later on, assuming that oil keeps on rising throughout the
As of this writing, Aaron Levitt was long Vanguard
Energy ETF, which holds XOM stock.
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