What’s next for Exxon and Chevron after reporting earnings?

By: Jayson Derrick
Jayson Derrick
Jayson lives in Montreal with his wife and daughter, loves watching hockey, and is on a lifelong quest to… read more.
on Oct 30, 2020
  • Exxon and Chevron reported weak third quarter results.
  • The reports confirm sluggish demand due to COVID-19 remains unchanged.
  • Two pros agree oil stocks should be sold to offset capital gains elsewhere.

Oil giants Exxon Mobil Corporation (NYSE: XOM) and Chevron Corporation (NYSE: CVX) both reported their respective third quarter earnings that make it clear that the negative impact from the COVID-19 pandemic is translating to poor demand. So what’s next for the oil giants? 

Oil was slumping before 2020

Oil and energy prices have been falling even before the start of 2020, Danielle Shay, Simpler Trading Director Of Options said on CNBC’s “Trading Nation.” In fact, the energy group started to show weakness way back in 2018 and the pandemic merely added to the already bearish narrative.

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Investors looking to take a position in the space need to ask themselves “how much pain am I willing to take,” she said. As it stands now, there are no indications of when or if trends will improve for the better.

Perhaps energy places will stay deflated for at least another six to nine months, she said.

“If I was in the space, I would cut the losses, take the tax loss and move on with my life and put my money elsewhere,” Shay said. 

Here is a recap of Exxon’s third quarter report and Chevron’s earnings from the same quarter.

Investors have big gains elsewhere

Many investors are sitting on strong gains in other sectors of the market, most notably big-tech and FAANG stocks, Piper Sandler’s Craig Johnson added to the conversation. As such, oil stocks are a prime candidate for investors to use as a means to offset some of their capital gains and lower their tax bill.

Taking a look at the Energy Select Sector SPDR Fund (NYSE: XLE), none of the technical indicators are even hinting at a rebound, he said. The three main individual stocks that dominate the ETF, including Exxon, Chevron, and Kinder Morgan Inc (NYSE: KMI) — all of which aren’t showing any bullish indicators.

As oil stocks slowly trend back to March-lows, it may be safe to conclude there is “no hope” for the sector at this time, he said. Exxon in particular is close to breaking below its March lows of $30.11 with the stock trading as low as $32.01 on Friday.

If Exxon or any of the other oil stocks fall below their March lows it could be followed up with even more weakness.

Finally, investors looking to replicate the composition of the S&P 500 index with oil stocks by allocating 2% of assets to the sector may want to consider.

“I think the energy space probably should just be set aside until we get clear indications of a trend change,” he said.

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