The first time I weighed in on Exxon Mobil (NYSE:XOM) stock, I said it wasn’t safe to buy.
With far too much oil supply, and dwindling demand, the risk just far outweighed the reward. That was on April 7, as the Exxon Mobil stock traded at $42.49.
Shortly after I said that, the XOM stock dipped to $38.19. From there the stock has waffled in a channel between $42 and $47 a share. But with improving oil supply-demand issues, I strongly believe the XOM stock cold run back to $55 again in the near term.
The Worst Has Been Priced into Exxon Mobil Stock
Exxon Mobil hasn’t posted a loss in about three decades. But thanks to the novel coronavirus, the oil giant posted a first quarter loss of $610 million, or 14 cents a share, as compared to earnings of $2.4 billion year over year. The loss was driven by a $2.9 billion non-cash charge.
CEO Darren Woods summed it up:
“COVID-19 has significantly impacted near-term demand, resulting in oversupplied markets and unprecedented pressure on commodity prices and margins. While we manage through these challenging times, we are not losing sight of the long-term fundamentals that drive our business. Economic activity will return, and populations and standards of living will increase, which will in turn drive demand for our products and a recovery of the industry.”
The company also announced it would reduce its 2020 capital spending by 30% to about $23 billion and lower its cash operating expenses by 15%. Woods also notes there are encouraging signs that demand for petroleum products is beginning to recover. In particular, he says there are early signs in the transportation sector.
Helping significantly, oil prices are recovering nicely.
Oil Prices Are Turning Aggressively Higher
After dipping well under zero, crude is back above $35 per barrel and running higher for a few reasons.
For one, Morgan Stanley just raised its year-end oil price forecast to $40 a barrel thanks to a quicker-than-expected balance in supply-demand. “We expect demand to rebound to about 97 million barrels per day (bpd) by Q4 as economies come out of lockdown – a significant improvement although still down about 4 million bpd year-on-year,” the bank said.
Two, Saudi Arabia and other OPEC oil nations may extend their output cuts through the end of the year. However, they’re still waiting to hear if Russia is on board, too. This comes just a month after OPEC agreed to cut output by 9.7 million barrels a day in May and June 2020.
Three, folks around the globe are starting to hit the road again. According to a Raymond James study, of the 3.9 billion people worldwide who have been under lockdown at some point since January, 3.7 billion of them have seen some type of reopening, CNBC reports.
It’s Time to Buy the Fear in Exxon Mobil
Unless we see another round of coronavirus threats cripple the global economy, the worst may be behind major oil companies. Demand is likely to rise, as folks get back on the road, and head back to work. Supply issues are likely to tick lower as production is cut.
From here, should we see further economic progress, oil stocks like Exxon Mobil could easily push back to $55.
Granted, some investors still dislike the XOM stock, but the best time to buy a stock is when it’s hated the most. Consider buying the excessive fear, as oil shows signs of recovery.
Ian Cooper, an InvestorPlace.com contributor, 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.
