We are starting a brand new week and I am interested in the global energy industry as oil prices continue to plummet amidst a supply glut and political skirmishes between Washington, Moscow and Saudi Arabia.
Hence, we start today’s options trading activities with an exploration of the options of Exxon Mobil Corporation (NYSE:XOM). Exxon Mobil with its enormous market capitalization of $365.33B is a manufacturer and marketer of commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics and a range of specialty products. The Company has a number of divisions and affiliates with names that include ExxonMobil, Exxon, Esso or Mobil.
Why We Are Looking at Exxon Mobil Today
Exxon Mobil caught my attention today after analysts at BMO Capital upgraded the company to ‘Market Perform’ from ‘Underperform’ with a price target of $95 up from $85. The fact that analysts are upgrading Exxon Mobil at a time when oil prices are falling and oil companies are seeing massive price drops suggests that it might be smart to take a deeper look at the fundamentals behind the company.
The chart above shows how the shares of Exxon Mobil have performed in the last six months. The chart also shows how the spot prices of the Brent Crude oil have changed within the same period. You will also observe the changes in the share price of Chevron within the same period.
You will observe that shares of Exxon Mobil have dropped 15.3% (Blue) in the last six months and the share price of Chevron Corporation has dropped 42.02% within the same period. You will also notice that Brent Crude Oil Spot price has dropped by 20.50% within that period.
Oil Will Eventually Recover
Oil seems to be on a downward trajectory; yet, the fact remains that the trend of declining oil prices cannot continue indefinitely. For one, oil and natural gas still drives a larger number of vehicles on our roads while also powering our industries and heating our homes. More so, many of the products around us are made from petroleum byproducts and we can expect all these to eventually balance up the current disparity between the demand and supply of oil.
We can also look forward to seeing an increase in the demand for energy, driven primarily by increasing energy use in developing countries. It is expected that energy demand in developing countries will grow at a 2.2% annual rate from now until year 2040. More so, experts are forecasting that developing countries will account for almost 65% of the global energy use by 2040 as emerging economies continue to record a faster rate of industrialization and development.
In the developed world, experts expect that energy use will grow by 0.5% over the next couple of year as oil and gas companies milk out one last round of gains from oil sales to the developed world.
How to Trade XOM Options
The recent decline being recorded in the oil & gas sector provides a stronger reason to purchase XOM stock options in anticipation of greater gains when oil recovers. I am optimistic that it won’t be long before shares of Exxon Mobil returns to winning ways above its 52-Week high of $104.76. I recommend buying the XOM Apr 2015 100.000 call (XOM150417C00100000) at an asking price of $0.80.
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