Weekly Investment Idea
Exxon Mobil (XOM) is one of the biggest oil companies in the US and is listed among the most profitable in US History. The company has existed for more than a century, providing oil and gas for the global market. Exxon indicated in its Friday filings that rising oil and gas prices will see its Q2 profit surging attracting buyers in the near term.
Exxon Mobil surged by +2.23% on Friday 1st of July, as a rebound in energy prices caused a broad rally in energy-related stocks. The OPEC+ meeting revealed that oil output is shrinking as Libya and other oil producers reduced their output targets as political conflicts loom.
US oil rallied by +2.45% from $104.50 near-term support on Friday closing at $106.67. Brent soared by +2.03% as Russia’s invasion of Ukraine continues to tighten oil markets, fuelling decades-high inflation across the globe.
A filing released last week indicated that Exxon Mobil expects at least $2.5 billion in the second quarter of 2022 from rising prices for oil and gas. Comparing the S&P 500 chart and Exxon Mobil in 2022, the Exxon mobile rallied by +44.14% YTD while the S&P 500 plunged by -19.89% signalling a windfall profit for the energy sector, amidst burdened consumers.
In the Q1 report released on April 29th, 2022, earnings and revenues indicated strong figures for the company. Revenue rose to $90.50B from an expected $82.84B leaving a 9.25% surprise surge in Q1 for 2022. The earnings were downbeat as figures dropped from 2.23 expected to 2.07, which is a -7.17% drop.
However, the pressure US President Joe Biden is applying on “Big Oil” producers to lower oil pump prices could be a major headwind for Exxon Mobil in the near term. A drop in oil prices will undermine Exxon Mobil’s strength and could potentially cut the forecast in the July 29th, 2022, report.
A strengthening dollar remains a major threat to the global stock markets as indicated by the broader market sell-off. Investors are pricing in the possibility of 75bps in July 2022 and 50bps in September 2022. Aggressive tightening has triggered recession fears and could weaken the commodity markets in the near term.
Traders should pay attention to the FOMC meeting minutes this coming Wednesday and the Non-Farm Payroll report on Friday to draw Fed tightening guidance. Traders should also keep an eye on the Commitment of Traders reports which show the oil futures markets divided by its active participants. Currently the commercials which consist of the producers, merchants, processors swap dealers are lifting their short position hedge, which alludes to them betting on higher prices to come. They have had net longs on the disaggregated report since late 2021. When this report looks like they are locking in prices and hedging in a meaningful way, prices are likely to be on their way down and won’t return to the highs for some time.
Daily Chart Analysis
Exxon Mobil bulls closed positively after 2-days of a major selloff. The price bounced off a 2-month low at $84.00 and bulls could target the $91.00 levels in the near term. Upside gains are capped by the $91.00 resistance, coinciding with the Bollinger Band baseline (yellow) and a break above that level could see bulls attempting to break above the $105.00 & 7-year high.
However, looking at the MACD indicator suggests the stock price is currently capped by a bearish outlook as the reading remains below the 0.00 base line. A break below the $84.00 support level could invalidate the price correction to the upside in the near term. Bearish momentum will be renewed and the next critical target to watch out for is the $76.00 level, tallying with the 200-day moving average.
H4 Chart Analysis
Exxon Mobil is trapped inside a range between the $91.00 resistance and $84.00 support. The accumulation within that range suggests impending volatility if the price manages to break outside of that range. The Stochastic RSI reading is below the 20.00 level suggesting an oversold level and the price could therefore retrace in the near term.
However, a critical barrier to gains to the upside is 91.00 and if bulls fail to break that high, further selling could be experienced in the near term. The next bearish target would be the $76.000 level and $70.00 psychological support. The 50-day moving average is capped against upside gains.