Exxon Mobil Corporation (NYSE:XOM) is headed into 2017 with plenty of tailwinds, taking a world-class energy stock and giving it an enormous lift. It’s a great time to be invested in energy, and probably the best time in recent memory to be invested in XOM stock.
First of all, as I’ve always stated, owning some form of energy in your long-term diversified portfolio is not a question. It’s a requirement. Just look at demand.
Domestic usage alone is nearly six oil barrels per 100 citizens. On the grand global scale, it’s about 1.5 barrels per 100 people.
What’s incredible about this fact is just how much demand remains to be created by developing nations, because about half of the world’s population is still only consuming a mere half-barrel per hundred people.
Consumption is just getting started, which means demand has a long way to go, which will eventually push oil prices higher. Exploration and production remain an essential part of the human experience.
The Future of XOM Stock Is Pretty Bright
The next big push in exploration will come from Exxon Mobil stock. That’s because Rex Tillerson, the CEO of XOM has been named Secretary of State. That means he will quickly make a deal — which is what Donald Trump is all about — with Vladimir Putin. Initially, that deal will not, on the surface, appear as if it has anything to do with the Rosneft deal that has been pending between Exxon Mobil and Russia to drill in the Russian arctic.
First, sanctions have to get lifted.
Hey, we all know that “deal-making” comes under a more formal term in government, called “diplomacy”. Trump is about the deal. He named a CEO of an energy company as the top diplomat. It couldn’t be more obvious.
So we’ll see a lot of talk and bluster, but something will happen that involves Russia committing to wiping ISIS out. That’s in Russia’s interest, after all. The country has suffered under Islamic extremism, and its global interests are threatened by these maniacs. Of course, this partnership against ISIS will also benefit the United States.
Having secured this “partner in the war on terror”, the U.S. will lift sanctions against Russia, which, of course, will just be cover to allow the Resnoft project to begin. It’s possible that Russia may have to make some kind of concessions involving Crimea or Ukraine. Knowing Putin’s genius as far as looking at the entire board, it wouldn’t surprise me at all if the moves into those territories were done with the expectation that a new administration would ask him to back away from them in order to have sanctions lifted.
When it comes to geopolitics, there are always a ton of moving parts.
Bottom Line on Exxon Mobil Stock
Still, there are other areas where XOM stock could see a lift, and that is in both increasing refining ability in the U.S. itself, and playing more in the shale area. Refining capacity remains insufficient in the western U.S., leading to less gasoline and higher prices.
The shale market is particularly compelling. Right now, shale producers are having fits because they drew down tons of debt to finance production, and then the oil price collapse happened. That smothered revenue, which made debt difficult to service. Exxon Mobil has decided not to reinvent the wheel and already purchased some of these companies.
Because of the economy of scale that XOM enjoys over these smaller producers, Exxon Mobil stock is more likely to benefit from producing shale oil at lower prices.
Finally, we can expect Donald Trump to lift restrictions on domestic exploration, opening up even more markets that the company already has an expertise in.
Overall, 2017 looks very solid for XOM stock.
Lawrence Meyers is the CEO of PDL Capital, and manager of the forthcoming Liberty Portfolio stock newsletter. As of this writing, has no position in any stock mentioned. He has 22 years’ experience in the stock market, and has written more than 1,600 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.
