Energy stocks including Exxon Mobil Corporation (NYSE:XOM) are coming under renewed pressure as crude oil prices once again roll over — stalling near the $53-a-barrel threshold — amid growing doubts about the state of the global supply/demand balance.
Inventories are at record highs. U.S. shale production is ramping up aggressively. And OPEC, in the wake of its production freeze agreement late last year, appears to be once again losing market share — the recapturing of which was the reason the oil sheiks engaged in their price war in 2014 in the first place.
XOM shares look particularly vulnerable here, threatening to break down below critical support in the $80-$81 range that’s been in place since last April as oil stocks first started rising on OPEC deal hopes. All eyes are on the upcoming OPEC policy meeting on May 25, at which time a decision is expected on a possible six-month extension to the production freeze agreement.
There is no easy answer for OPEC. If they continue their production cap, U.S. shale producers will fill the void. U.S. rig counts are up for 14 straight weeks returning output to levels not seen since April 2015.
A breakdown here should put XOM’s early 2016 lows in play, which would be worth a 12%-plus decline from here. In anticipation, I have recommended the May $80 XOM puts to my Edge Pro subscribers.
XOM will next report results on April 28 before the bell. Analysts are looking for earnings of 90 cents per share on revenues of $68.1 billion.
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