Now is not the time to buy Exxon Mobil (NYSE:XOM) stock, or any oil stocks for that matter.
Even with top stocks like Exxon, BP (NYSE:BP), and Chevron (NYSE:CVX) at multi-year lows, it’s not time to buy. Granted, there were hopes the Saudis and Russians would end the oil price war, but that’s now been delayed.
Worse, we’re running out of places to store all of the oil supply thanks to sizable demand destruction. It’s so bad, oil prices could sink to $10 a barrel thanks to incredible oversupply.
At the moment, avoid top oil stocks like Exxon Mobil stock. While it’s incredibly oversold at 2004 lows, it could get even cheaper for two reasons.
1) The World Is Running Out of Places to Store Oil
As the world continues to drill and refine, we’re running out of places to store it.
According to Forbes, “Analysts at Rystad Energy, the oil consultancy based in Oslo, Norway, estimate that the world is likely to run out of storage at current production rates by April, estimating earlier this week at 76% of the world’s storage is already full. In some regions, like Western Canada, storage could be full by the end of this month.”
In addition, IHS Markit notes surplus will reach 1.8 billion barrels of crude, which will exceed available storage of 1.6 billion barrels. “Production is going to have to be reduced or even shut in,” said Jim Bukhard, vice president and head of oil markets at IHS Markit, “It is now a matter of where and by how much.”
Worse, there’s far more supply as people around the world stay home and off the roads, and as transportation comes to a grinding halt.
2) OPEC Meeting Has Been Delayed
Over the last few days, oil ran higher on hopes OPEC+ was contemplating a production cut of up to 10% of the world’s supply. Russian President Putin even noted a cut of 10 million barrels a day seemed possible. Unfortunately, that no longer seems likely.
All as tensions boil over between Russia and the Saudis yet again. Russia has again blamed the Saudis for pulling out of an OPEC deal, for increasing production, and for offering oil price discounts. The Saudis fired back saying Putin’s comments were “devoid of truth.”
“Now we have two issues,” said Helima Croft, head of global commodities research at RBC. “After President Trump’s statement it seems rather unlikely any production commitment is forthcoming. And it looks like we might have a new diplomatic rift between Russia and the Saudis…The Saudi minister is pushing back furiously on the Russian minister’s assertion that the Saudis are targeting shale.”
With the two sides acting like children, an oil deal doesn’t look likely in the near-term. In fact, with all of this tension, I wouldn’t be shocked to see $10 oil. Until the oil price war is over, and until the world begins to work off the excess supply, avoid oil stocks like Exxon Mobil.
Ian Cooper, a contributor to InvestorPlace.com, has been analyzing stocks and options for web-based advisories since 1999. As of this writing, Ian Cooper did not hold a position in any of the aforementioned securities.
