The last time I looked at Exxon Mobil (NYSE:XOM) stock, oil prices were plunging and analysts were saying don’t go there.
A few weeks later, the stock is trading higher and some think it could approach $50 per share.
In fact, nothing much has really changed. Exxon Mobil stock is a tobacco play, a company with a high dividend but a bleak long-term future. A 30% cut in capital spending is designed to protect the dividend, which now yields 8.6%.
But the long-term trend is ominous.
Happy Talk on Exxon Mobil Stock
At OilPrice.com, the online trade journal of the oil patch, talk has turned upbeat.
For traders, it’s not a question of whether prices turn around, but when. Brent crude, considered the “world price,” is already back up near $32 per barrel.
Analysts disagree on who is “winning the oil war,” which Saudi Arabia and Russia timed to coincide with the novel coronavirus’ demand destruction. Some say it’s the Saudis. Others see money flooding into Russia, which has lower pumping or “lifting” costs. Still others see the U.S. winning by placing a tariff on imports.
There is hope for a cease fire, with the U.S. effectively joining OPEC and Russia in cutting production. Hope for such an outcome sent prices up and speculation is rising that President Donald Trump will step in. Trump has been hinting a truce can be worked out.
Temporary or Permanent?
The bigger question is whether the supply-demand imbalance is temporary or permanent.
The International Energy Agency (IEA) sees demand falling in 2020 and considers that temporary. But demand was already starting to roll over in 2019.
Tesla (NASDAQ:TSLA), the electric car maker, is now worth $100 billion, more than the so-called “big three” of General Motors (NYSE:GM), Ford (NYSE:F) and Fiat Chrysler (NYSE:FCAU) combined. All those companies have plans to launch electric vehicles, as do other big car companies. Renewable sources like solar and wind now represent most of the additional capacity being added to global grids. The argument is now over the speed of the transition, not whether it will happen.
Exxon’s Position
An end to the oil war would make Exxon Mobil stock a buy for its dividend. Exxon believes there are ways for it to take advantage.
It’s playing on fears of low prices in talks with its unions. It’s putting the brakes on a project off Mozambique. It’s rewriting the laws in Guyana to give itself more control there. It’s letting smaller U.S. shale companies go under, in hopes of gaining more control over U.S. production.
Exxon sees itself coming out of the current crisis stronger than ever. It would control both U.S. production and that of newer, rising oil countries in the western hemisphere and Africa. That’s why some analysts are saying you should buy Exxon Mobil stock here. The big three in oil by 2021 could be Saudi Arabia, Russia and Exxon Mobil.
The Bottom Line on Exxon Mobil
Because Exxon Mobil is a dividend stock, your investment decision should reflect a long-term view. You buy dividend stocks for income, not as a trade.
My own view hasn’t changed over the last year. The first big economic story of this decade will be the fall of the house of oil.
It’s going to be messy. There are going to be revolutions as people realize the money that greased autocratic wheels will stop flowing. That includes the United States, where “Big Oil” is now dwarfed in market cap by “Big Tech,” which increasingly runs on renewables.
The oil war is the first act in the twilight of the Gods.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.