The last time I weighed in on Exxon Mobil (NYSE:XOM), I said, “should we see further economic progress, oil stocks like XOM could easily push back to $55.” That was on June 4, as the XOM stock traded at $49 a share.
Not long after, the Exxon Mobil stock did push to a high of $55.36 for a quick return.
At the time, I argued that unless we saw another round of coronavirus threats cripple the global economy, the worst was priced into major oil stocks. Demand would likely rise, as folks got back on the road after weeks of lockdowns, and supply would tick lower.
While the XOM stock did gain momentum on those catalysts, we could see a near-term reversal lower in oil as infections pick up steam across the U.S. Should it intensify, oil stocks, like Exxon Mobil could easily drop back to test March 2020 lows.
Oil Prices Are Slipping on Demand Concerns
The coronavirus just refuses to die. What makes it worse is that we’re seeing cases mount again — and fast.
Hundreds of thousands of people are being infected by the day. Global cases are now up to 11.66 million with nearly 540,000 unfortunate deaths. There’s even fear global economies may need to be shut down again. U.S. states are backtracking on reopening plans as cases rise.
Hospitals are being overwhelmed. In Arizona, for example, 89% of the state’s intensive care beds are already full. Some U.S. states are even reversing plans to reopen. In Miami-Dade County, officials just reversed plans to reopen gyms, some venues, and restaurants.
Worse, “This isn’t confined to a handful of states anymore,” says former US FDA Commissioner Dr. Scott Gottlieb. “It’s going to be difficult now to get this under control.”
Global Demand and Exxon Mobil Stock
Unfortunately, surging case numbers are stoking oil demand fears all over again. In fact, global oil demand could fall by 2.5 million barrels a day with new surging caseloads, says Houston Chronicle contributor Paul Takahashi.
On top of that, we could see a return of a supply glut, which was responsible for sending oil deep into negative territory earlier this year. The last thing we need to see is news the world is running out places to store oil again.
“As we move into the second half of the year, the energy rebound is showing signs of stalling… as traders assess the threat of the recent resurgence in COVID-19 cases and the looming possibility of more economic shutdowns in the back half of the year,” said Tyler Richey, co-editor at Sevens Report Research.
Goldman Sachs Says to Sell XOM Stock Before Earnings
On top of the coronavirus mess, Goldman Sachs is telling investors to sell Exxon Mobil stock.
In fact, analyst Neil Mehta has a sell rating on the stock with a price target of $42 a share. He says shares are “expensive on valuation, relative to U.S. majors, as well as see free cash flow generation and dividend coverage as challenged.”
Worse, in a recent 8-K filing, Exxon Mobil noted the ongoing headwinds from the pandemic to its upstream and downstream business. With that, the company now expects to post a loss of between 43 and 95 cents in the second quarter.
“The release suggests fears for a very weak quarter will materialize while the release alone does not de-risk the earnings print given additional questions around dividend policy and heightened focus on impairments,” said Cowen analyst Jason Gabelman.
The Bottom Line on XOM Stock
With the coronavirus wreaking global havoc, oil stocks could easily come under pressure along with oil demand. Add to that an expected tough earnings report ahead, it’s best to avoid shares of Exxon Mobil until we have clarity on the virus and its impact on supply and demand.
Should things get out of hand, as they did earlier this year, the XOM stock could drop back to March 2020 lows, near-term.
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.
