Is it time to buy Exxon Mobil shares as crude oil rallies to 7-year highs?

By: Motiur Rahman
Motiur Rahman
Md Motiur enjoys researching how companies are solving challenges the world will face over the coming decades. In his… read more.
on Oct 4, 2021
  • Exxon Mobil shares edged higher 1.3% on Monday after the crude oil price rallied to 7-year highs.
  • Oil prices rose after OPEC+ decided to stick to its policy of increasing output by 400,000 bbl/day next month.
  • The WTI crude rose to $78.07 per barrel while Brent crude topped $81.41.

On Monday, Exxon Mobil Corp (NYSE:XOM) shares edged higher 1.30% as oil priced extended gains to new 7-year highs after OPEC+ decided against doubling the incremental monthly output.

The group has a policy of increasing production by 400,000 barrels per day every month, which came into question last week, with some members suggesting to double the capacity to 800,000 barrels.

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Oil prices surged with the WTI Crude rallying to trade above $78 per barrel, while Brent crude rose to $81.41. 

As a result, several oil and gas stocks added significant gains including the benchmark ETFs, The United States Oil ETF, and Vanguard Energy ETF.

Is Exxon undervalued?

From an investment perspective, Exxon Mobil shares trade at an exciting forward P/E ratio of 12.15, making the stock a compelling option for value investors. 

However, with analysts expecting its earnings per share to fall by a whopping 265% this year before registering a tepid recovery of 14.29% twelve months later, growth investors may opt for alternatives in the market.

Therefore, although Exxon looks like an attractive short-term investment, it is less compelling to long-term investors.

Source – TradingView

The rally seems poised to continue

Technically, Exxon Mobil shares appear to have recently completed an upward breakout from a descending channel formation, signalling a potential shift in the market sentiment.

As a result, the stock has rallied to the overbought conditions of the 14-day RSI, creating an opportunity for a short-term pullback. However, with oil prices soaring after OPEC+ provided solid guidance on production for next month, the XOM price could continue rising.

Therefore, investors could target extended gains at about $64.53 or higher at $67.33. On the other hand, $59.14 and $56.13, are crucial support zones.

There is time to buy the XOM stock

In summary, although XOM shares have rallied to overbought conditions, the company’s valuation of 12.15 forward P/E coupled with rising oil prices provide solid catalysts.

Therefore, investors could target a retest of the current 12-month highs of $64.53 before shorting the stock.

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