NEW YORK (TheStreet) -- The price of oil lost $7 of its value in the past three weeks. What has changed in the past few weeks to warrant such a sharp fall in prices? After all, the tensions in the Middle East remain high and the new sanctions that the West imposed on Russia could bring down the oil production of this country.
Will oil prices bounce back anytime soon?
Russia and Oil
The U.S and European Union recently imposed additional sanctions on Russia. Some of these sanctions could impede the future progress of Russia's oil production growth as they will include an "export ban for dual use goods for military end users and curtail Russian access to sensitive technologies particularly in the field of the oil sector."
Thus, the ban on oil drilling equipment isn't likely to impede Russia from reaching its output of 10.55 million barrels of oil per day over the short term. Over the long term, however, this ban could reduce its growth in production.
But western oil companies such as Exxon Mobil (XOM) and BP plc (BP) could suffer because they have strong ties to the Russian oil market via Russian companies starting with Rosneft. BP owns 20% stake in the oil Russian producer, and Exxon Mobil is a partner with Rosneft in the Kara Sea project in north of Siberia.
Based on the above, the market's reaction to the tensions between Russia and the West was harsh, which resulted in a correction to the price of oil in recent weeks.
The recent fall in oil prices brought down oil companies: BP's stock, at $48, is down nearly 10% over the last month while Chevron (CVX) stock, at $126, lost 2.8% for the same period. Exxon, at $99, is off 3.7% for the month.
Its common knowledge that when the tensions in the Middle East rise, oil prices do, too. But the recent fighting between Israel and Hamas was in a region where there is little oil. Therefore, this turn of events won't have a direct or long-term impact on oil prices. Moreover, OPEC's production remained close to its quota of 30 million bbl/day. Even the fighting in Iraq didn't lead to a sharp fall in the country's output in the past few months.
Based on the above, the global oil market is likely to further loosen, which will keep bringing down oil prices over the short term.
At the time of publication, the author was long TICKER SYMBOL, although positions may change at any time.
At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.
TheStreet Ratings team rates EXXON MOBIL CORP as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:
"We rate EXXON MOBIL CORP (XOM) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, attractive valuation levels, good cash flow from operations, increase in net income and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 1.5%. Since the same quarter one year prior, revenues slightly increased by 9.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Net operating cash flow has increased to $10,197.00 million or 32.72% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 18.80%.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income increased by 28.0% when compared to the same quarter one year prior, rising from $6,860.00 million to $8,780.00 million.
- Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- You can view the full analysis from the report here: XOM Ratings Report