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ExxonMobil Stock: Why Short Interest in XOM Has Surged

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  • Short interest in ExxonMobil stock has fallen this quarter, pulled down by the company’s weak earnings results.
  • Weak oil prices suggest ExxonMobil’s earnings could fall in the fourth quarter. Wall Street expects its profit to fall 46% year-over-year.

ExxonMobil (XOM) stock has fallen 3.9% this quarter, driven down by the company’s weak third-quarter earnings and lower crude oil prices. Other energy stocks are also down. Chevron (CVX), Royal Dutch Shell (RDS.A), and BP (BP) stocks have fallen by 2.3%, 4.5%, and 3.1%, respectively.

ExxonMobil’s short interest and stock price are inversely related. Short interest in ExxonMobil stock has risen by 0.10 percentage points since October 1 to 0.99% (of outstanding shares). A rise in a stock’s short interest usually means negative sentiment for a stock has increased.

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Why ExxonMobil’s short interest rose

Negative sentiment toward ExxonMobil stock has likely risen due to its weak results and the lower oil prices. In the third quarter, ExxonMobil’s earnings fell across its upstream, downstream, and chemical segments, by more than 50%. Lower crude oil and natural gas realizations hurt its upstream segment, while better volumes helped the segment. The downstream and chemical segments reeled under weaker margins. However, the fall in the company’s earnings was slightly smaller than analysts had forecast. To learn more, read ExxonMobilMobil Earnings Beat the Estimate, Stock Rose.

Furthermore, despite crude oil prices rising this quarter, they’re lower YoY (year-over-year). WTI prices have risen 3.8% sequentially but have fallen 6.5% YoY to $55.50 per barrel. Lower oil prices are bad news for oil companies that draw much of their total profit from upstream earnings. The price decline could hurt ExxonMobil in the fourth quarter.

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Short interest in ExxonMobil’s peers

Short interest in Chevron (CVX), Royal Dutch Shell (RDS.A), and Total (TOT) has risen by 0.14, 0.06, and 0.06 percentage points since October 1, to 1.19%, 0.21%, and 0.08%, respectively. In the same period, their stock prices have fallen. Chevron’s, Shell’s, and Total’s earnings all fell in the third quarter.

Q4 outlook

Factors driving the energy sector have been mixed this quarter. While oil prices have declined, refining cracks have expanded. Therefore, ExxonMobil’s upstream earnings could be weaker but partly offset by better downstream profits. Analysts expect ExxonMobil’s EPS to fall 46% YoY to $0.77 in the fourth quarter.

Cracks have been expanding due to a new marine fuel regulation set to be implemented in January 2020. According to the IMO (International Maritime Organisation), shippers will be required to use fuel with a maximum of 0.5% sulfur content. This development has changed refining industry dynamics significantly. Whereas some refiners may be able to meet this standard, others may need to invest to adapt.

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