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Big Week for Big Oil


3 March 2021

Exxon Mobil is set to hold its 2021 Investor Day before US markets open on Wednesday, a day before OPEC+ announces its output decision. In the lead up to these key events, which serve as key barometers for the global oil industry’s outlook, Exxon Mobil’s share prices have been on a tear, surging 36% so far in 2021. Having formed a technical “golden cross” in mid-January, the stock’s uptrend since November remains firmly intact. However, with its 14-day relative strength index (RSI) flirting with overbought territory, this stock has been prone to dip once that 70 threshold is reached.

Key considerations for Exxon Mobil’s Investor Day

When Exxon held its investor day in 2020, the world had yet to fully realize the full extent of the damage wrought by Covid-19. Now, some 12 months later and with the astonishing recovery in oil prices since, investors will be eager for more details on how Exxon intends to forge ahead into the post-pandemic era:

Investment strategy

Greater capital expenditure, with the aim of taking advantage of the oil price recovery, could also threaten Exxon’s massive pledge of $15 billion in annual dividends. The company stated recently that its cashflow would be enough to meet its dividend commitment at $50 Brent.

Yet, markets will be cognizant of Exxon’s latest earnings announcement on 2 February, declaring its first annual net loss since its 1999 merger that created the largest US oil company, also its first annual net loss in about 40 years.

In the aftermath of a year to forget for Big Oil, investors want to know whether Exxon can get that tricky balance right between strengthening its balance sheet and the spending required to take advantage of future opportunities, all while trying to appease dividend-hungry shareholders.

Carbon emissions

Exxon’s rivals, such as BP and Royal Dutch Shell, are already making the radical shift to curb oil and drastically lower their carbon emissions by 2050. In contrast, Exxon has been criticized widely and loudly over their apparent reluctance to match their rivals’ adoption of the green agenda.

It remains to be seen how much Exxon will warm up (no pun intended) to a net-zero carbon goals. With that in mind, Exxon appointed activist investor Jeff Ubben to its board just this week to give Exxon a more environmentally-friendly tilt while also setting up a new business unit to focus on low-emission technologies.

Still, much more is likely required out of Exxon in order to appease activist investors such as Engine No.1, which holds over $400 million in Exxon shares. While Exxon Mobil’s Investor Day holds plenty of potential developments to rock its share prices, more volatility could be in store for Big Oil the day after.

OPEC+ supply decision looms

On Thursday, OPEC+ is set to decide on the output levels for its 23 members for April, and could restore as much as 1.5 million barrels per day back into global markets next month. How much of that 1.5 million in withheld barrels will be released back out could determine the extent of oil market’s reaction.

A full 1.5 million bpd being flooded back into global markets starting April could drag Brent back to sub-$60 levels once more, and pare down its 21% in year-to-date gains.

The decision by OPEC+ wouldn’t just impact Brent and WTI crude prices, but is also likely to feed into the stock prices of oil companies over the coming days. With investors having plenty to digest over the next couple of days, this pair of key events could dictate how oil-linked assets perform over the near-term.

#source

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