Why Shares of ExxonMobil Gushed Higher Today
Key Points
The Strait of Hormuz remains closed to almost all commercial traffic, and that reality hangs over the oil markets.
ExxonMobil is well-positioned to benefit from higher oil prices, even in its downstream operations.
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Another day and another swing in the price of oil. Following yesterday's slump, oil prices recovered today and are currently trading above $91 a barrel. That move was enough to send ExxonMobil (NYSE: XOM) higher by 3.9% at midday today.
Why oil stocks are volatile
The decline in the price of oil yesterday came as the Trump administration claimed positive discussions with Iran, and walked back on a threat of an imminent attack on Iran's power plants. Such an attack would have marked an escalation in the conflict. Moreover, Iran's military had threatened to indefinitely close the Strait of Hormuz, through which 20% of the world's energy flows, and attack regional energy infrastructure.
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Walking back the threat helped calm fears yesterday, but the reality investors woke up to today was that the Strait remains almost entirely closed to commercial traffic, the conflict is still ongoing, and escalatory threats continue to be issued with Iran denying any talks have taken place. That kind of reckoning sent the price of oil higher today.
Where next for ExxonMobil
All of which means it makes sense to buy shares in oil and other energy stocks to protect against downside risk. As an integrated major with substantial downstream operations, ExxonMobil is often seen as having relatively less exposure to high oil prices, but in the event of a prolonged absence of crude oil from the Persian Gulf, its downstream operations will benefit from the company's ability to supply crude.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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