In a prior paradigm, it may be possible that the discount on oil companies like Exxon Mobil (NYSE:XOM) represents a viable opportunity. At the time, transportation options were largely limited to using fossil fuels. Increasingly, though, this is no longer the case. As the electric vehicle market becomes more fleshed out, along with a rise in green energy innovations, the case for XOM stock has dimmed significantly.
Indeed, the narrative for Exxon Mobil has become so untenable that I’m issuing a decidedly negative idea: avoid XOM stock at all costs!
I don’t take such bearish concepts lightly. After all, blue chips like Exxon Mobil offer tens of thousands of high-paying jobs. Further, Exxon has long been a bellwether for economic performance. But with what I termed the Roaring 2020s coming back on track, XOM stock has in turned careened toward irrelevancy. Investors will do well to avoid the inevitable train wreck.
For a start, just read the headlines. Not too long ago in August, Exxon Mobil generated the wrong kind of news when XOM stock was dropped from the Dow Jones Industrial Average. Up until that point, Exxon was the Dow’s oldest member.
According to NPR.org, “Exxon joined the Dow Jones Industrial Average in 1928, as Standard Oil, one of companies descended from John D. Rockefeller’s world-transforming oil monopoly. Mobil was another branch of Rockefeller’s empire.”
Certainly, this is a historical and symbolic loss. However, in the long run, it was the right decision. Americans need to take leadership in alternative energies and new innovations such as EVs. Otherwise, we will only be stymieing future generations.
Of course, this doesn’t make the divorce any easier.
XOM Stock Faces an Intractable Road Map
If the expulsion of Exxon Mobil from the Dow Jones wasn’t enough of a signal, consider the sentiment from the world’s top energy traders. In a Bloomberg report, many independent trading houses have forecasted that global oil demand won’t meaningfully recover for at least 18 months.
Some are a little bit more optimistic. For instance, Russell Hardy, the chief executive of Vitol Group, the biggest independent oil trader, stated that daily consumption “is still 4 million to 5 million barrels day below where it was expected to be before the pandemic.” He doesn’t see demand returning until at least the summer of 2021.
About the only good news comes from China, where oil demand has roughly returned to pre-pandemic levels. Despite it being the world’s second-largest economy, demand from China alone won’t help XOM stock, as consumption in its home market has plummeted, along with the rest of the Americas and Europe.
Subsequently, the technical posture of Exxon Mobil stock gives me great concern for further volatility. In the nearer term, it appears that shares are charting a descending triangle pattern, which implies a continuation of the bearishness.
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But the longer-term picture is even more startling. When you look at the chart from a monthly view, you can see that XOM has never recovered from the initial strike due to the pandemic, which was astonishingly severe. All the bulls have been able to muster are weak upside performances that have consistently failed.
Now, it’s just hanging on by a thread. As much as I am an optimist, the fundamentals simply are not supportive of an upside move. Everywhere you look, whether in the domestic market or international, transportation demand on a year-over-year basis has deteriorated substantially, denying any justification for XOM.
Even Politics Hurts Exxon Mobil
While I’d hate to pile on an already embattled organization, even the divisive political race presents problems for XOM stock. According to Reuters, former Vice President Joe Biden is leading in the polls in Pennsylvania by five percentage points over incumbent President Donald Trump.
From what several political analysts have stated, Pennsylvania is a critical battleground state. Whoever wins here has a good chance of taking the White House.
Unfortunately, that’s another worrying roadblock for Exxon Mobil and other oil companies. Increasingly, Democrats have been pushing for clean energy solutions, especially in light of the west coast wildfires. Should Biden win, his administration will be under pressure to turn the nation green. And while I’m not going to get into a deep political discussion, you should at least be aware that this election could have significance for XOM.
Ultimately, even if Trump wins a second term, the writing is on the wall for Exxon Mobil. There are too many headwinds for this oil firm to overcome, while a new generation is eyeballing a completely different energy paradigm. As I said, avoid XOM at all costs.
On the date of publication, Matthew McCall did not have (either directly or indirectly) any positions in the securities mentioned in this article.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
