After a steady climb higher since last year in Sep. 2017, oil prices also gave the underlying stocks in the sector a good lift. But that changed last week when Exxon Mobil (NYSE: XOM) reported that it was not operating optimally at current oil prices in the ~$60/bbl range. After its Q4 earnings report, the stock fell from $89 to $83/share.
Exxon reported earnings of $0.88 a share on a revenue rise of 17.9% Y/Y to $66.52 billion. Global production fell 3% Y/Y to 4 billion boe/day. The bright side is that upstream earnings rose by $1 billion to $2.5 billion, thanks to favorable pricing. The downside is that Downstream earnings fell by $289 million to $952 million. Despite the weak results, Exxon’s CEO said it would invest a sizable $50 billion in the U.S. markets over the next five years.
The lower production from XOM is an embarrassment. The company could have produced more as prices improved. Looking ahead, oil prices must still rise for XOM to realize higher profitability. Meanwhile, the company is paying out a healthy dividend yield 3.64%. Only BP plc (NYSE: BP), which fell 5% last Friday pays a better dividend, yielding 5.8%.
Takeaway
OPEC holds the cards right now. So long as the members of the group limit output, oil prices will hold their levels, if not rise further. With the economy as hot as it is in the U.S and globally, chances are good that oil stocks and Exxon in particular will do well in the medium term.
