Exxon Mobil Stock Up 12% in January – Time to Buy XOM Stock?

Exxon Mobil stock has surged nearly 12% so far this month as oil prices have once again climbed above the $80 level while the company also announced the discovery of two new wells in Guyana.

In a press release published yesterday, Exxon provided more details about the discovery. The two wells are located in the Stabroek block offshore Guyana and initial estimates point to a total of 10 billion oil-equivalent barrels of recoverable resources.

“The Fangtooth discovery is a successful result of our strategy to test deeper prospectivity, and the Lau Lau discovery adds to the large inventory of development opportunities in the southeast part of the Stabroek block”, stated Mike Cousins, senior vice president of exploration and new ventures at Exxon.

The company also provided an update on the development of other fields. According to Exxon, the Unity – a drilling vessel that will further support the company’s offshore operations in the South American country – is “on track to start production in the first quarter of 2022 and has a target of 220,000 barrels of oil per day at peak production”.

According to the latest annual report from the company, the combination of all of Exxon’s developed and undeveloped proved reserves by the end of 2020 was 15.2 billion barrels of oil-equivalent. With this in mind, this discovery is no small thing.

What could be expected from this oil and gas stock in light of this development? In this article, I’ll be assessing the price action and fundamentals of XOM stock to outline plausible scenarios for the future.

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Exxon Mobil Stock – Technical Analysis

Back in October when I last wrote about Exxon Mobil, I set forth a mid-term target of $65 per share for the stock following the break of the falling wedge pattern highlighted in the chart above.

The stock went on to surge to that level only a month after but then steadily declined amid concerns associated with the omicron variant of the COVID-19 virus and its potential impact on the demand for crude.

However, this new variant has proven to be less aggressive and deadly than its predecessors and that gave the market some confidence as the impact of another wave of the virus on the global economy is now expected to be limited.

Meanwhile, this latest downtrend seems poised to tag the upper bound of the ascending price channel shown in the chart and that could be followed by a short-term decline in the price – especially after considering that momentum indicators are starting to get overheated.

In this regard, the Relative Strength Index (RSI) just moved to oversold territory yesterday at 73 while the MACD has climbed to positive territory. That jump is being accompanied by steadily increasing histogram readings.

Trading volumes have also been quite high lately as they have exceeded the 10-day average in the past four days.

Moving forward, the price may continue to climb until tagging that resistance area at around $70.5 per share resulting in a potential 4% gain. After that, the short-term outlook for the stock would turn bearish unless that threshold is broken.

However, even if the price declines in the next few weeks, the mid-term outlook from a technical perspective continues to be bullish as the stock would still remain on an uptrend.

Exxon Mobil Stock – Fundamental Analysis

The price of oil remains the most important driver for the valuation of oil and gas stocks such as Exxon Mobil.

In December last year, Goldman Sachs predicted that the price of crude could surge to $100 in both 2022 and 2023 and Bank of America also set forth a similar target for the commodity.

“We’ve already had record high demand before this newest variant, and you’re adding higher jet demand and the global economy is still growing”, said Damien Courvalin from Goldman in regards to the investment bank’s forecast.

Meanwhile, analysts from Schroders – a firm that has also forecasted a price of $100 per barrel for crude in 2022 – stated that they believe there could be a supply/demand imbalance resulting from OPEC’s inability to return to average pre-COVID production levels.

However, the same firm cited three important risks that the industry faced in 2022 including the reintroduction of mobility restriction if COVID cases once again rise in some corners of the developed world, a decline in the demand for crude as a result of higher prices, and weaker global economic growth if supply chain constraints continue to plague multiple industries.

Since the outlook for oil is bullish for the year, the same goes for oil stocks such as Exxon Mobil.

Right now, the stock is offering an attractive 5.2% dividend yield and is trading at 13.4 times its forecasted adjusted earnings per share for 2022.

In the past 12 months, Exxon Mobil generated free cash flows of nearly $24 billion which were more than enough to cover its dividend payments. Since the outlook for crude is bullish, XOM stock stands as a highly attractive dividend stock and a pullback at this point would provide an even more attractive entry price to open a long position.

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