Although the beleaguered energy and oil markets have generally bounced higher from their March or April lows, they needed a major catalyst to justify their momentum. One of the biggest concerns here is the concept of buying into a dead-cat bounce. For Marathon Oil (NYSE:MRO) and other smaller, independent oil firms, they got what they needed: a positive report regarding Moderna’s (NASDAQ:MRNA) novel coronavirus vaccine, which spiked MRO stock.
Partnering with the National Institutes of Health, Moderna released the results from their Phase 1 clinical trial. Testing antibodies among eight volunteer patients, scientists discovered that they found a particular category called neutralizing antibodies. According to CNN Health, “Neutralizing antibodies bind to the virus, disabling it from attacking human cells.”
Further, the scale of the neutralizing antibodies were at levels equal to or above those seen among patients naturally recovering from Covid-19. Because of the enormously positive implications, MRO stock jumped over 8% on the news.
Of course, the major indices joined in on the fun. While most analysts focus on the unprecedented magnitude of economic destruction, this is unlike the Great Recession. Just prior to the coronavirus derailing us, we were talking about multi-decade lows in unemployment and rising wages.
Sure, the Covid-19 pandemic completely changed the narrative. However, without the pandemic, the bulls argue that we would have never experienced this calamity. Therefore, when the virus fades away and when the country feels comfortable enough to fully reopen its doors, the economy will come back swinging.
Indeed, in the early stages of the recovery, we could see phenomenal growth due to pent-up demand. But this might not pan out, which then wouldn’t help MRO stock.
MRO Stock Must Transition from One Crisis to Another
Even with the positive vaccine news, I have a healthy dose of skepticism. For one thing, the data for the vaccine isn’t a clear home run. Eight volunteers is a very small number to determine broader efficacy. Beyond that, the study has not been peer reviewed.
I will be more interested in the vaccine as Moderna conducts larger-scale clinical trials. If it passes muster there, we may have something. But that’s a big “if.” Too many times, we’ve seen promising drugs, only to have them fail spectacularly in advanced trials.
And let’s assume that Moderna is successful in these trials. The next hurdle is production and distribution. By the time they’re ready to deploy the vaccine, the coronavirus could have come and gone, leaving behind a wake of economic destruction. Thus, time is of the essence and it’s not looking favorable for an investment like MRO stock.
For Marathon Oil and its ilk, the health crisis is only one component of a two-front battle. I would argue that it’s also the smaller component. Without viable consumer demand, MRO stock is going nowhere fast. What this vaccine really must do is restart the labor market.
But how likely is this? Some experts have pointed out that most of the jobs lost in April were considered temporary reductions. Therefore, when the economy reopens, these jobs will come right back. Given the new normal, this thinking may be naïve.
First, we don’t know when things will fully reopen. Until then, reduced traffic and air travel means less oil demand, which is obviously bad for the energy sector. Second, many small businesses can’t operate much longer on zero revenue. Thus, workers may want to return, but they may not have anything to return to.
You Can’t Force a Reopen
Finally, before running to MRO stock, we should consider that companies are not necessarily obligated to hire back all the employees that were let go. Reasonably, a majority can cite a reduction in business that necessitates painful cuts. No one would blink an eye if an organization used that argument as an explanation for its layoffs.
And that brings up a worrying point for the oil industry. Almost every company was impacted by the coronavirus. Most have adapted to the new normal. For instance, Zoom Video Communications (NASDAQ:ZM) has become the go-to name for teleconferencing.
Undoubtedly, this spirit of innovation has also led managers thinking about their cost-cutting impact. Why bother rehiring people when you can have digital solutions to make your organization acceptably efficient? Additionally, the role of the international gig economy can play a huge role moving forward. After all, we’re not the only ones on this planet who speak English. Nor are we the most cost-efficient English speakers relative to a hiring company’s perspective.
Ultimately, even with our collective health restored, people can find themselves still sitting at home. Though this is a longer-term risk for MRO stock that hopefully might not materialize, it’s nevertheless a possible headwind you shouldn’t ignore.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.
