Are Exxon Shares About to Soar?

Energy

Published: December 6, 2023 10:00 am

Big Oil is among the villains at the COP28 climate conference, which will run for another week. Fossil fuels remain the largest contributor to climate change. The growth of energy powered by wind, water and nuclear has slowed. High interest rate costs have made it harder for these “green” companies to get capital. Large oil companies like Exxon Mobil Corp. (NYSE: XOM) have no reason to support them, regardless of what they say about their contributions to the green future. Most experts believe that oil use will continue to rise to the end of the decade. Exxon’s business prospects are just fine. (The 20 American companies with the worst reputations.)

Exxon’s Prospects

Oil has backed off from its $100 a barrel level in mid-2022. However, at $75, oil companies like Exxon continue to post massive profits. OPEC+ has cut back production, and a strengthening global economy will drive demand up again, particularly in China, the world’s largest importer of crude. Geopolitical blowups also push oil prices higher. The Middle East, home to most national exporters, is a region of unrest. Unrest pushes up crude prices.

Exxon’s shares have underperformed the market this year. They are off 8%, while the S&P 500 is 18% higher. To make the point about the link of crude prices to Exxon’s fortunes, its stock peaked in 2022, just as crude began its amazing run to $100 a barrel months later.

In the most recent quarter, Exxon’s revenue declined, due mostly to oil prices. The top line was $90.8 billion, down from $112.0 billion in the same period a year ago. Despite shrinking net income, Exxon remained staggeringly profitable with a bottom line of $9.1 billion. Darren Woods, board chair and chief executive officer, spoke about the business’s massive scale: “We delivered another quarter of strong operational performance, earnings and cash flows, adding nearly 80,000 net oil-equivalent barrels per day to support global supply.” If the world’s peak use of oil is several years away, Exxon is in a position to exploit that.

Whether or not the future is “green,” Exxon’s prospects are bright for the next several years.

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