It's a compelling stock...for a very particular type of investor.
Times are tough all over the stock market these days, but
the oil industry is possibly the hardest hit of them all. Tumbling prices and
oversupply have hit oil stocks hard, including Big Oil superstar ExxonMobil
(NYSE:XOM). Shares of the oil major have crashed more than 50% over the last
five years.
With shares trading at levels not seen since 2004, it's
worth checking to see if ExxonMobil is a smart buy, or a sucker's bet.
The short-term outlook for ExxonMobil isn't good, but that's
true of a lot of stocks right now. Coronavirus has upended the world's economy,
and it's going to take time for things to get back to normal -- or to settle
into a "new normal."
For oil and gas companies like ExxonMobil, the biggest issue
is plain old supply and demand. With flights grounded and commuters on
lockdown, crude oil supply has vastly outstripped the demand for fuel and
refined products. That's a situation that's not going to change overnight: with
a coronavirus vaccine nowhere near ready and even effective treatments for
COVID-19 remaining elusive, people aren't just going to jump right onto planes
once restrictions are lifted.
Worse, recent production cuts agreed to by the world's oil
producing nations haven't gone far enough to address the demand shortage. 9.7
million barrels per day (b/d) of production sounds like a lot to cut, but
demand in April has fallen by an estimated 29 million b/d from last year. All
that excess crude has been filling up available storage capacity, to the point
that there are now dozens of oil tankers anchored offshore, full of oil that
has nowhere to go.
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