Exxon Mobil (NYSE: XOM) is the product of a merger of Exxon and Mobil in 1999 to form the world’s most valuable energy company, with a market value 20 years later of more than $300 billion. Both companies were descendants of the breakup of Standard Oil in 1911 due to antitrust actions.

Back then, Standard Oil had a monopoly on the oil market that made its founder, John D. Rockefeller, the richest man in the history of the world.

The global energy sector has grown to the point that no one company can control the market the way “Esso” did back then. Instead, the concern now is that there are enough big oil producers to ensure adequate supply to keep gasoline and energy prices affordable for consumers. Global oil consumption recently exceeded 100 million barrels per day, its highest level ever.

Demand for oil is growing at an annual rate of 1 – 2%. Fortunately for consumers, oil production has been growing at an even faster rate. Techniques such as fracking have allowed drillers to extract more petroleum from the ground as explained in this video:

That development drove oil prices down from more than $100 a barrel in 2014 to less than $50 by the end of 2018. Declining oil prices is bad news for most energy producers. That’s because the cost of extracting oil is relatively fixed. As a result, profit margins narrow when prices drop and widen when they rise.

Energy stocks were the worst performing sector of the S&P 500 during 2018 as oil prices dropped, losing 18.1%. All of which begs the question, is now the right time to buy Exxon Mobil stock?

Also see: “Top 3 Best Cyclical Stocks to Own (2019 Review)“

How Has Exxon Mobil Performed?

At one time, Exxon Mobil stock was a favorite holding of legendary investor Warren Buffett. True to form, Buffett sold his shares of XOM in 2014 just as oil prices began to hit the skids. Buffett correctly anticipated a rough patch for energy stocks due to falling oil prices. However, now that oil prices appear to have bottomed out it may be time to start buying them again.

Before we predict XOM’s future performance, let’s take a look at how Exxon Mobil stock has performed in the past.

What is Exxon Mobil’s Stock History?

Exxon Mobil stock significantly underperformed the stock market over the long run. During the past 10 years, XOM shares gained only 34.6% while the SPDR S&P 500 ETF (SPY) gained 297%.

How Has Exxon Mobil Stock Performed Recently?

Exxon Mobil stock has also performed poorly recently, losing 15.1% while SPY was down only 4.6% in 2018.

Who Are Exxon Mobil’s Rivals?

A small number of huge producers dominate the global energy market. In addition to the oil-producing countries of OPEC and Latin America, these three energy conglomerates compete with Exxon Mobil around the world.

Royal Dutch Shell (NYSE: RDS-A)

At a market cap of nearly $300 billion, Royal Dutch Shell is only slightly smaller than Exxon Mobil. Headquartered in the Netherlands, Shell is the most globally diversified oil producer in the world.

However, that is rapidly changing. The company sold over 50 properties in 25 countries over the past two years that no longer fit into its long-term plans. That has allowed Shell to focus operations on its most profitable operations. Shell earned $21.4 billion in profit in 2018, a 34% improvement over 2017.

Chevron (NYSE: CVX)

Chevron is yet another huge descendant of Standard Oil with 74,000 employees in 70 countries. At a market cap in excess of $200 billion, CVX is the fourth-largest oil producer in the world. In 2018, Chevron booked nearly $15 billion in profits as the company increased daily production to its highest level ever.

Over the past five years, CVX has delivered a total return of 26.4% to its shareholders compared to -2.6% for XOM. That’s because Chevron’s revenue stream is more diversified than Exxon Mobil’s, with a bigger percentage of sales from natural gas, refining, and retail distribution.

Total SA (NYSE: TOT)

Most Americans have never heard of Total SA. That’s because the company is headquartered in Paris and its primary drilling operations are overseas. However, Total is actually the sixth-largest energy producer in the world at a market cap of $160 billion.

Total has been drilling for oil in Africa for over 60 years. Earlier this year, the company announced a major natural gas discovery off the coast of South Africa. With the fast-growing middle-class populations of India and Africa demanding more oil, Total is well positioned for years to come.

Will Exxon Mobil Go Up in 2019 (Should You Buy?)

The argument for owning XOM is pretty straightforward. Exxon Mobil stock is highly leveraged to the price of oil. So, if oil prices recover in 2019, XOM should also head up. However, oil prices are difficult to predict and are subject to geopolitical events that can occur with little notice.

With an annual dividend yield in excess of 4%, shareholders can afford to wait for XOM to start climbing the charts. The company has plenty of cash to pay its dividend while investing for future growth.

Will Exxon Mobil Go Down in 2019 (Should You Sell?)

The argument against owning XOM is equally plain. Among its peers, XOM has been less efficient in producing oil so its profit margins are narrower. Even if oil prices go up, it will still be a less attractive investment than the companies named above.

Despite its huge cash flow, Exxon Mobil does not spend nearly as much money on share buybacks as its peers. That means its share price is more susceptible to extreme swings in value and it’s less protected on the downside.

Overall Exxon Mobil Forecast and Prediction for 2019

We believe XOM will move in tandem with oil prices in 2019. And since oil production currently exceeds oil consumption, it is unlikely that oil prices will rise appreciably this year. For that reason, we see no reason to buy XOM now.

However, a drastic change in the global oil supply could quickly change that. Russia, Iran, and Saudi Arabia are all flirting with stronger import sanctions from the United States and its allies. Under that scenario, Exxon Mobil could emerge as one of the few reliable oil suppliers as OPEC gradually disintegrates. If that happens, we wouldn’t be surprised to see Exxon Mobil stock quickly reverse course and outperform the market.

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