Oil prices jumped June 13 after a few shells were lobbed at a tanker in the Gulf of Oman. The attack sent the price of crude oil up more than $2 per barrel after the price of Brent crude, the world standard, had briefly fallen below $60 per barrel.
Something else that’s rising in June is the price of Exxon Mobil (NYSE:XOM) stock, which opened for trade June 13 at $74.70, up almost $4 per share from the start of the month.
War helps Exxon in multiple ways. Its global reach means it can squeeze the best price from fear. It also lifts the price of American crude, which has been threatening to become unprofitable amidst the shale boom.
Oil War and Exxon Stock
Iran called the attacks “suspicious.” They come just as Japanese Prime Minister Shinzo Abe was making his first visit to Iran since its 1979 revolution. The fear is the attack may provoke a shooting war among the oil powers that could send the price of oil into three figures and lead to a global recession.
No one died in the attacks, but the incident was certain to stoke war fears on TV news shows. One tanker was carrying naphtha, the other methanol.
Beyond the war talk, however, oil prices were getting no lift at all, with some speculators worrying oil might fall to $30 per barrel — a point where no one would profit.
Westward Ho
Exxon Mobil is sensitive to the oil bears. It is doubling down on shale oil production in the Permian Basin of Texas and New Mexico, promising governments a giant windfall even if prices fall to $40.
The company is also investing heavily in facilities to process that oil. It is expanding a refinery in Beaumont and looking to build a new petrochemical project in the Corpus Christi area.
Exxon’s strategy is now geared heavily to the Western Hemisphere. It has found a huge pool of oil off the coast of Guyana and put $6 billion into exploiting it. It is also expanding drilling off the coast of Argentina.
What Could Go Wrong?
Exxon’s relative safety and diversification are why I’ve been calling it the only oil stock you should own. But I don’t think the boom is going to last. Long-term trends, like an explosion of supply, the falling price of renewables and greater efficiency, all work against it.
Oil prices are captive to world events in a way they haven’t been in 40 years, but not all these events are good for prices. Before the Iranian attacks, prices were slipping in the face of growing trade tension and rising inventories.
Middle East suppliers are especially nervous. Saudi Aramco is planning its first earnings call. The Sauds made a deal with Russia to keep down production, and they’re promising further production cuts.
The Bottom Line for XOM Stock and Oil
A decade ago, people worried if there was enough oil and natural gas to run the world. Now it’s clear there’s too much.
Technology has become a double-edged sword for Exxon Mobil. Technology lets it produce more oil at lower cost. But technology also lets consumers and businesses use less oil and move toward electric cars.
Given that reality, a Middle East war may be all that might save Exxon Mobil from disaster. Not a big one. A small one, like the one boiling up right now. Cry Wolf, as in Blitzer, and you’ll get your price.
Dana Blankenhorn is a financial and technology journalist. He is the author of the mystery thriller set in Texas, The Reluctant Detective Finds Her Family, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.
