Oil Prices and ExxonMobil Stock: What’s the Correlation?

ExxonMobil (XOM) stock and oil prices have a strong correlation. ExxonMobil’s stock price moves in line with the prices. The company’s revenues and earnings are also impacted by oil prices. Since the prices have risen in November, Exxon stock has moved up.

The one-year correlation coefficient between ExxonMobil stock and WTI crude oil prices stood at 0.54. The stock price and WTI oil prices moved in line with each other 54% of the time in the past year, which suggests a strong positive correlation.

Other integrated energy companies like Chevron (CVX), Royal Dutch Shell (RDS.A), and BP (BP) also have a positive correlation with WTI. The one-year correlation coefficient between Chevron’s stock price and WTI oil prices was slightly lower at 0.46. Shell and BP stocks had higher correlation coefficients of 0.57 and 0.64, respectively.

The correlation is visible in the movements in these stocks this month. So far, WTI crude oil has risen 3.7% month-to-date. ExxonMobil’s stock price has also risen 1.7%. Higher WTI has also supported other oil stocks. While Chevron’s stock price has increased 1.4%, Shell and BP’s stock prices have increased 0.1% and 0.6%.

Crude oil prices directly influence integrated energy companies’ earnings. Oil levels impact ExxonMobil’s upstream realization and profits. During the period of high oil prices, upstream earnings account for a significant portion of ExxonMobil’s total earnings.

So, the level of oil prices is crucial for integrated energy companies. In the current scenario with weak prices, Saudi Arabia, a large crude oil producer, has received a lower valuation for its upcoming IPO.

The price level depends on several factors that influence oil demand and supply. Factors like economic growth, trade policies, and geopolitical situations impact crude oil demand. In the current quarter, the US-China trade tension eased and WTI moved up.

Oil production, export capabilities, OPEC’s stand (like ongoing production cuts), and technological advancements (like shale and tight asset production in the US) are some of the factors that influence oil supply.

These factors, on an ongoing basis, impact the oil market and price. Oil future contracts, which include oil price prediction by major market participants, shape up based on these factors.

While prices play a crucial role in determining energy companies’ upstream earnings, oil and gas output also impacts the earnings. If the output (measured in a million barrels per day) is high, it could partly offset the impact of lower prices.

In the third quarter, ExxonMobil’s oil and gas output rose 2.9% to 3.90 million barrels of oil equivalent per day. Although the company’s upstream earnings fell 49% YoY in the quarter, its higher output prevented another fall. Similarly, Chevron and BP’s production rose 2.6% YoY and 4.4% YoY, respectively, in the third quarter.

In the scenario of lower prices, energy companies aim to raise earnings in other segments like refining and chemicals. They also focus on maintaining strict financial discipline. They lower costs, optimize capex, and sell non-core assets, which aims to reduce debt and increase cashflows.

The practice was highlighted in ExxonMobil’s third-quarter earnings conference call. Neil Hansen, ExxonMobil’s vice president of investor relations and secretary, said, “We are also leveraging our significant financial capacity to progress advantaged investments through the cycle, maintaining constancy of purpose on our commitment to grow long-term shareholder value across a range of market environments.”

Read XOM or CVX: Better Buy on Leverage, Liquidity, Growth? to learn more.