Exxon Mobil Macroeconomic and Industry Analysis

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Exxon Mobil
Macroeconomic and Industry Analysis
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Since its founding by John D. Rockefeller in 1870, Exxon Mobil (XOM) has proven to be a leader in the oil industry (Mitkowski 1). So much so that in 1911, Exxon Mobil (Previously known as Standard Oil) had so much power in the oil industry that the government had to break up the company. Exxon thrived throughout the 1900s with the introduction of cars in America and numerous other advancements in society. Exxon continued to lead the industry during this time. With the struggle of Standard Oil of New Jersey in 1911, they could buy a 50% stake in an oil refinery in Texas, which diversified into oil exploration (Mitkowski 1). Since then, the company has been one of the leading drillers. They can overcome any challenges they face.
The coming has divided into two main segments of operation:
1 Oil and gas exploration, development, and production
2 Refining and marketing petroleum products
With the company divided into these three segments, it utilizes the integrated approach, therefore carrying out the Oil and gas exploration(upstream) and refining and marketing of petroleum products (downstream). Exxon’s refineries are 60% larger than the industry average, with higher capacity for low-grade feedstock and better integration with chemical facilities and operations. Competitors will find it impossible to match such size and efficiency. In 2010, Exxon bought XTO Energy, bringing reserves in significant shale gas fields and technology to expand around the world. This deal demonstrates Exxon's leadership's convincing logic. Not just in that region but also the capital. From the facts above, Exxon is at an advantage compared to its competitors, which makes XOM a stock that should be at the core of an energy holding. This is a great stock for growth, even for conservative investors.
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Macroeconomic Analysis
Since the recovery of the United States economy after the COVID-19 pandemic, the economic recovery has been strong. The strong recovery has been supported by the government stimulus package both for households and businesses. Consequently, the unemployment rates have rapidly declined while workers' demand is still strong. The aggregate demand for goods and services is also high, further pushing the demand for employees in the labor market. Employers have been forced to offer gifts and incentives to attract staff while increasing their compensation. As a result, the factors of the cost of production have increased. The unprecedented demand in the labor markets and the increase in aggregate demand have forced producers and manufacturers to hike commodity prices, leading to Inflation. The Federal Reserve noted that the inflation rate increased more than expected to levels last seen forty years ago. Inflation has further been accelerated due to the Russian invasion of Ukraine. Russia is among the leading oil and gas producers, and due to the U.S. sanctions, the supply is reduced, leading to soaring fuel prices.
Industry Outlook
The Petroleum Industry is significantly dependent on the geopolitical environment and inflation rates. As a result, the sanctions on Russia are likely to exacerbate the situation. The inflation rates are set to rise and may force the federal government to intervene through monetary policies through the Federal Reserve. The interest rates may likely be raised to tame Inflation. Consequently, layoffs and unemployment rates may creep back again, leading to a depressed demand, which may adversely affect the oil and gas industry since oil and gas demand will decline. Oil and gas are critical inputs in production.
In terms of profits and spending within the industry, they are set in the direction of oil prices. The oil industry and the profits are correlated with the price of oil. Supply and demand, long-term sector expectations, and the futures market are components that will affect oil prices. Overall, profits in the oil industry are dependent on supply and demand as well as geopolitical influence. Demand in Europe and North America is stagnant due to the large energy efficiency in these significant areas. Energy can be a competitor to the oil industry because these areas try to control fuel emissions. However, developing nations are looking for help in building up their countries, and oil can aid in this. There is constant pressure from competition because many companies look to replace oil reserves at the lowest costs. The oil industry has levels to its structure. This means large companies, mid companies, and just a few pure refiners. The companies tend to have strong balance sheets and use decent leverage. Regulatory issues often shape industry trends. For example, government law has been passed in the United States to increase fuel efficiency in cars. This law will prohibit faster growth for the oil industry in the U.S. There are also laws about climate change and cleaner energy that could change the industry for refiners.
Firm Position
Chapman, argues that ExxonMobil is best place in the chemical industry as the industry approaches a golden era never seen in the past thirty-three years. Chapman further adds, that according to research conducted by the Brookings Institution, the middle class population will more than double by 2030. More people will be able to afford consumer goods, cars, and appliances as the developing world's incomes rise. Everything, from electric appliances, is made of chemicals and requires energy. Furthermore, the company’s financial muscle allows it to diversify into lower emissions technologies and being aligned to the modern world realities.
Exxon’s new business line that seeks to commercialize technologies for reducing carbon emission that include carbon capture technology places the company in a better position to tap into the lower-emission market technologies (Businesswire). The that is expected to be a multi-trillion market by 2040
Economic Advantages
ExxonMobil's significant advantage over competitors is integrating upstream and downstream operations because of the synergies obtained from operating in both segments. Hence its asset turnover is exceptionally higher than its competitors. The company has managed to remain profitable while the industry operates under net loss margins because it benefits from the synergies of operating both upstream and downstream.
Furthermore, the industry is threatened by unfavorable restrictions. The government of the United States has implemented regulations requiring efficient technology in the consumption and production of cleaner energy (Mitkowski). As a result, large firms are investing in the development of cleaner alternatives and technology. Using its massive capital reserves, ExxonMobil is better positioned to research and finance innovative technologies to stay ahead of competitors. According to Slavin, ExxonMobil plans to spend more than $3 billion on low-carbon business units over the next five years. Furthermore, climate change policies constantly discourage the use of fossil fuels, resulting in minimal refinery investment. As a result, the competitor is likely to shrink as the globe turns away from fossil fuels.
Dupont Decomposition Analysis
According to a review of its financial statements, Exxon Mobil is relatively competitive in the petroleum business. The company's profitability ratios were 30.9 percent gross profit margin, 8.4 percent operating margin, 11.29 percent pre-tax margin, and 8.51 percent net profit margin (Sönnichsen). Chevron and ConocoPhillips, on the other hand, perform better. Chevron had 42.67 percent gross margins, 11.35 percent operating margins, 13.88 percent pre-tax margins, and a 10% net profit margin. On the other hand, ConocoPhillips turned out to be the most profitable of the three companies. Exxon's gross margin and operating margin were also lower than the industry average. Chevron and ConocoPhillips both outperformed the average earnings in terms of profitability. In terms of the efficiency ratio, ExxonMobil outperformed Chevron but fell short of ConocoPhillips. Exxon had a 14 percent asset utilization rate, whereas ConocoPhillips had a 21.47 percent utilization rate. Exx...