Exxon gets rare sell rating on oversupply concerns

Exxon Mobil Corp. (NYSE:XOM) was slightly higher in the trading session on Thursday, according to analysts at BNP Paribas Exane demoted its stock to Underperform from Neutral with a price target of $105, good for a 14% downside to the current price. The downgrade marks the first sell-equivalent rating XOM has received in more than a year, with analysts predicting further declines in oil prices. Previously, XOM shares posted gains for seven consecutive sessions.

“Substantial OPEC+ overcapacity hangs over the sector like the Sword of Damocles,” analysts including Lucas Herrmann wrote in a note to clients. Oil prices “will need to move to levels that could not only spur an improvement in demand, but also lead to short-cycle supply reduction in the US,” they said.

The slide in Exxon and oil markets came as the big rally in oil prices that began last week began to unravel. Brent crude futures for December delivery were trading at $76.63 a barrel at 11:40 a.m. ET on Thursday, while WTI crude was changing hands at $73.24 a barrel. This marks a sharp decline from their 2-month high of $81.12 for Brent and $77.91 for WTI crude.

Oil prices fell on Thursday after the US Energy Information Administration reported that crude inventories rose by 5.8 million barrels for the week to October 4. The EIA reported an increase of 3.9 million barrels for the previous week. On Tuesday, the American Petroleum Institute reported a sizable 10.9 million-barrel increase in crude oil inventories, while gasoline inventories fell by 6.3 million barrels over the period, with production averaging 10.2 million barrels per day.

Last week’s oil price rally was triggered by Washington’s indication that Israel may strike Iran’s oil facilities. Clearview Energy Partners predicted oil prices could gain as much as $28/bbl if flows are blocked in the Strait of Hormuz; $13/bbl if Israel strikes Iranian energy infrastructure and $7/bbl if the US and its allies impose economic sanctions on Iran.

By Alex Kimani for Oilprice.com

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