Nov 10, 2020 (Baystreet.ca via COMTEX) -- Oil prices jumped in early Monday trading on a new wave of optimism that a Covid-19 vaccine could be closer than ever to becoming a reality. WTI Crude was up 10.8% to trade at $41.16 per barrel after dropping to $35.80 about a week ago on news that Pfizer /zigman2/quotes/202877789/composite PFE +0.36% and BioNTech's /zigman2/quotes/214419716/composite BNTX -0.04% Covid-19 vaccine candidate, BNT162b2, has been more than 90% effective in preventing infections in early efficacy tests. The oil and gas sector in general is showing major strength, with the Energy Select Sector SPDR ETF (XLE) having surged 11.8% in the pre-market in what is shaping up as the sector's best one-day performance in the year-to-date.
Big Oil has not disappointed either, with the two biggest names Exxon Mobil Corp. /zigman2/quotes/204455864/composite XOM -0.86% and Chevron Corp. /zigman2/quotes/205871374/composite CVX -0.04% up 11% each in pre-market trading.
There is good reason to be optimistic because the two companies' plan to make an emergency use authorization (EUA) application as early as the third week of November if the vaccine passes safety tests.
However, whether those gains will stick remains to be seen. The Pfizer study was done on 44,000 participants but the vaccine has yet to pass the critical safety milestone. Furthermore, the energy sector's long-running supply/demand imbalances are not going anywhere.
Current indications are that another glut could soon come calling unless OPEC+ agrees to reverse its earlier decision. The organization has plans to ease output reductions on January 1, a move that will effectively add another 1.9 million barrels a day to the market. This is not being helped by events in non-OPEC markets. For instance, a succession of storms crossing the Gulf of Mexico has curtailed American production by some 500,000 barrels/day since the end of August, but most of the production that was cut during the hurricanes has already been restored. The situation could become murkier as Libya ramps up production--which has already recovered to roughly 1 million barrels per day.
Stocks of Exxon, Chevron, and other Texas oil producers have been soaring after Republican businessman Jim Wright trounced Democratic challenger lawyer Chrysta Castaneda to retain control of the Texas Railroad Commission. Castaneda had sought to put climate change on the energy regulator's agenda but failed to break the Republican Party's 26-year stranglehold on TRC despite receiving the backing of former NYC mayor Michael Bloomberg who poured $2.6M into the race. Wright mainly received contributions from political action committees for energy companies such as ConocoPhillips /zigman2/quotes/207605056/composite COP -2.25% , Energy Transfer /zigman2/quotes/210213433/composite ET -0.49% , Pioneer Natural Resources /zigman2/quotes/206736173/composite PXD +0.67% , Ovintiv /zigman2/quotes/204243091/composite OVV -1.10% .
But that too might not matter in the long-run.
Exxon has been desperately pulling on all the levers in a bid to get through the oil slump with its dividend intact but could be running out of options. The company has announced that it will cut 15% of its workforce in order to protect its fat dividend (10.6% yield) and also slash capital expenditure--again. During its Q3 earnings call, Exxon revealed that revenues had cratered 29% Y/Y to a below-consensus $46.2B while Q3 GAAP loss totaled $680M compared with a profit of $3.17B for last year's comparable quarter with its refining business especially hard hit. Further, the company says it expects 2021 Capex to be as low as $16B after cutting 2020 Capex from $33B to $23B in the current year.
Exxon has resorted to doing something that's a bit out of character with its proud tradition: Begging for aid. The oil giant is urging Australia's government to start releasing aid to oil refineries days after its British peer, BP Plc. /zigman2/quotes/207305210/composite BP +1.40% , announced a decision to close its Australian refinery--the country's largest. XOM says the proposed six-month time frame for talks with the government is way too long given how dire the situation has become.
Exxon is also pondering something else unExxon-like: A major asset writeoff. The company is currently reassessing its North American natural gas holdings and could impair a staggering $25B-$30B. Wall Street has been hard on XOM for the company's earlier refusal to lower its capital spending and reluctance to adjust the book value of its assets to reflect the current reality. Writeoffs on such a massive scale are likely to be jarring for a company that's already deeply out of favor with XOM stock down 51% in the year-to-date.
Given this backdrop, here are three energy stocks that could be better bets than Exxon.
#1 Cheniere Energy
Market Cap: $12.6B
YTD Returns: -12.9%
Cheniere Energy /zigman2/quotes/206202121/composite LNG -1.33% is a pure-play LNG operator of facilities that liquefy natural gas. U.S. LNG exports are one of the few sectors of the energy market that remain in decent shape. LNG exports have been soaring since August, thanks to weather-related demand. Cheniere and other natural gas players have also been gaining after China's Foran Energy Group signed a deal with the company to export LNG starting 2021 through 2025. The deal is a clear signal that Chinese firms expect business relations between the two countries to normalize under Biden after a choppy period under Trump. Chinese firms had eschewed longer-term contracts with U.S. exporters after the Trump government imposed heavy tit-for-tat tariffs on shipments.