Oil and gas stocks witnessed a terrific rally this year as the reopening of the economy revived demand. Moreover, the Russia-Ukraine war triggered a major spike in oil and gas prices and further benefited these stocks. However, the Fed’s decision to hike interest rates to tame inflation is expected to drive the economy into recession and adversely impact fuel demand, which has the potential to harm Exxon Mobil’s (NYSE: XOM) stock momentum.
Exxon stock has advanced 43% year-to-date. However, the stock fell about 11% over the past month as oil prices were volatile amid fears of a looming recession.
Exxon CEO Sees Further Rise in Prices
In a recent interview with The Financial Times, Exxon CEO Darren Woods stated that he expects oil prices to continue to climb until such a rise triggers a renewed investment in output. Woods also blamed the soaring oil & gas prices on the pressure to transition to cleaner energy alternatives at a time when demand is robust.
Woods also feels that the global energy crisis has been caused by the initiatives to reduce emissions without addressing consumption. He added that governments not only failed to meet the “demand side of the equation” but also didn’t understand the need for “a fairly robust set of alternative solutions if you’re going to reliably and affordably meet the needs of people.”
Wall Street’s Take
Last month, Credit Suisse analyst Manav Gupta upgraded Exxon to a Buy from Hold and increased the price target to $125 from $115.
Gupta highlighted that the company has continued to invest in some of the most attractive oil and gas projects, which is different than what some of the several oil and gas majors have been doing, which significantly cut back their investments.
Gupta added that post the Russia-Ukraine conflict, where crude oil, refined products, and natural gas supplies are constrained, Exxon’s differentiated growth strategy will deliver “excellent returns for its investors.”
Overall, the Street is cautiously optimistic about the stock, with a Moderate Buy consensus rating based on 11 Buys and five Holds. At $105, the average Exxon Mobil price target implies 19.9% upside potential from current levels.
Oil prices might continue to remain volatile in the days ahead. The Russia-Ukraine war and shortage of refining capacity are expected to keep supplies tight and hence prices high. That said, a potential recession might hurt demand and be a drag on oil prices.
Meanwhile, analysts at Bank of America (BAC) feel that if European sanctions force Russian oil production below nine million barrels per day, then oil prices could surge to $150 per barrel next year. However, they expect oil prices to plunge to $75 a barrel in 2023 in the event of a recession.
Overall, the stocks of Exxon Mobil and its peers could be volatile in the days ahead as demand and supply dynamics seem uncertain currently.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.