Low oil prices have weighed heavily on big-oil companies the last couple of years, Exxon Mobil Corporation (NYSE:XOM) in particular. Now, the Organization of the Petroleum Exporting Countries is doing something it hasn’t done in eight years to goose prices, and that’s good news for Exxon — and XOM stock.
OPEC officials announced Wednesday that they would cut oil production by 1.2 million barrels a day starting in the new year and lasting for at least six months, with an option for more if it deems necessary.
In response, global oil prices instantly jumped 9% to $50 a barrel for the first time in more than a month. XOM stock jumped along with it. But how much will the OPEC ruling really impact Exxon Mobil going forward?
XOM Stock at a Crossroads
OPEC controls 40% of the world’s oil supply, and Exxon is the largest oil producer in America, producing approximately 5.3 million barrels a day. In the two years since OPEC adopted a “pump-at-will” policy — with no cap on production, thus driving costs down from well over $100 a barrel in 2014 to below $30 a barrel earlier this year — XOM’s sales and earnings have plummeted.
Two years ago, Exxon Mobil stock’s revenues consistently topped $100 billion per quarter and earnings hovered around the $2-per-share range. Today, XOM’s quarterly sales are in the $55 billion range, with earnings-per-share failing to top $1 in any of the last four quarters.
Not surprisingly, Exxon Mobil stock has been pummeled during that two-plus-year sales slide; since June 2014, XOM has fallen from $103 to as low as $72, though it has recovered some of those losses this year, up roughly 12%.
That’s no coincidence. When your profits are slashed by two-thirds and your sales get cut nearly in half, investors are bound to abandon ship no matter how big a name the company is.
Now, sitting just above its 50- and 200-day moving averages, XOM stock appears to be at a crossroads. The OPEC decision should be good for a nice short-term bump, though some of it was baked into the cake since the cartel announced its intentions to institute a production cap of some kind back in September. But the real impact will be felt when oil prices start to truly rise, and those still haven’t been higher than about $52 a barrel in more than a year.
That might not happen until production cuts commence in January. If oil prices climb back into the upper $50s and even $60s, look for it to give Exxon’s bottom line a much needed boost. Should that occur, Exxon Mobil stock could start creeping back toward $100 a share.
Bottom Line on Exxon Mobil Stock
If you ditched your XOM stock amid sinking oil prices the last couple of years, now would be a good time to dip a toe back in. Start with a small position and build on it if oil prices cross the $52-mark. If Exxon Mobil stock breaches $95, its 52-week high, then the once-reliable stock might be in for a more extended rally.
Regardless, OPEC’s decision this week is essentially a lifeline to big-oil companies. Now we’ll see if it actually resuscitates them.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.
