Exxon Mobil (NYSE:XOM) jumped 13% from March 24 to June 8, a trend that was driven by higher oil prices amid reduced fears of the novel coronavirus. It’s a trend likely to continue going forward. As a result, longer-term investors should buy Exxon Mobil stock at its current levels.
On March 18, in an article on Chevron (NYSE:CVX) stock, I predicted that reduced supplies of oil, combined with increased demand due to less fear about the coronavirus, would drive oil prices higher. That trend has indeed played out, as the West Texas Intermediate oil price jumped from its absurd low of -$37.63 per barrel on April 20 to a peak of nearly $40 per barrel last week.
The surge, which has been very positive for Exxon and other oil stocks, was indeed driven by both reduced supply and increased demand.
Supply and Demand Trends and Exxon Mobil Stock
On the supply side, an alliance of OPEC and other oil-producing nations agreed to meaningfully reduce their daily oil output, while many American companies also started producing less oil.
OPEC+, as the alliance became known, recently agreed to renew the supply cuts it instituted in April. Meanwhile, with oil prices still relatively low and amid uncertainty about the pandemic, American production will probably remain fairly anemic.
At the same time, new data points are suggesting that gasoline demand will continue to jump.
Specifically, demand for driving directions on Apple’s (NASDAQ:AAPL) devices is now trending significantly above their January 2020 levels. In April, the demand for such directions had tumbled more than 50% below January 2020 levels.
Further, restaurant reservations have risen consistently since May, according to OpenTable, while U.S. hotels are now 40% full. Air travel has also steadily increased since April.
With the data showing that traveling is continuing to rise, demand for oil is, in all probability, going to continue to increase. That trend, combined with continued supply restraints, should cause oil prices to continue to climb in the coming weeks and months. As a result, Exxon Mobil stock will likely continue to advance going forward.
Recent Fears of a Coronavirus Resurgence Are Overdone
As I’ve contended previously, the recent fears about a resurgence of the coronavirus, which have pushed down the entire stock market and oil prices in recent days, are unjustified. The fears have been primarily based on increases in the number of positive coronavirus tests and total hospitalizations in several states.
But former New York Times reporter Alex Berenson, who recently wrote a book on the coronavirus, on June 11 noted that not all people who test positive have serious cases of the virus.
Further, he pointed out that many people are now going to hospitals for elective procedures that were postponed in April and May because of the pandemic.
Hospitals are testing all of those patients for the virus, and some of them who have the virus but are asymptomatic are testing positive for it. Taken together, these trends have caused coronavirus cases and total hospitalizations to meaningfully climb in some states, Berenson indicated.
Meanwhile, as I pointed out in a previous column, the number of people dying from the virus has dropped to less than 1,000 in recent weeks from close to and frequently over 2,000 during the peak of the pandemic. In recent days, that trend has become even more pronounced; on June 12, 791 people died from the virus and on June 13 and June 14, the death totals were 702 and 331, respectively.
I believe that the declining death totals show that, although the total number of cases has risen in some places, the total number of serious cases are actually meaningfully falling. I think that’s due to a combination of the phenomenon identified by Berenson, the impact of Gilead’s (NASDAQ:GILD) coronavirus drug, and the greatly reduced potency of the virus which was recently identified by the head of an Italian hospital.
Increases in the number of cases that are not serious will not scare Americans into staying indoors all the time or cause authorities to reinstitute mass closure. Thus, they will not stop oil prices from continuing to climb over the longer term.
The Bottom Line on Exxon Mobil Stock
Favorable supply and demand trends will continue to push oil prices higher over the coming weeks and months. Meanwhile, recent fears that an increase in the number of coronavirus cases in some places will result in new shutdowns and reduced oil demand are unjustified. Therefore, investors should buy Exxon Mobil stock on its recent weakness.
As of this writing, Larry Ramer owned shares of Gilead. Larry has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been airline stocks, oil stocks and Snap. You can reach him on StockTwits at @larryramer.
