S&S wrote on a report made by Goldman Sachs a few months ago which focused on the future of oil prices. The investment bank believed that the price of oil would reach $65 in 2021. However, Exxon mobil, one of the oil supermajors, now has a more bearish view on the black stuff.
Despite having staged a solid rebound from cyclical lows hit just a few weeks ago, the oil giant is turning increasingly pessimistic on the future of oil prices, and according to internal documents seen by the WSJ, the company has lowered its outlook on oil prices for much of the next decade.
Exxon has cut its expectations for future oil prices for each of the next seven years by 11% to 17%. The company has lowered its forecast to between $50 and $55 a barrel for the next five years, before eventually topping out at $60 a barrel in 2026 and 2027, according to the documents prepared in September.
With the price of oil a key variable for Exxon’s cash flow models, and thus expectations that the company can sustain its remarkable dividend which a few weeks ago had a yield of over 10% amid expectations it would be cut.
An Exxon spokesman declined to tell the WSJ what its current price projections are, saying that the company uses a range of prices to develop its business plans, although the company has sounded more optimistic in public statements about the long-term future for the oil industry coming out of the pandemic (beyond 2027). This is echoed with Goldman’s more bullish view on oil, as well as OPEC’s.
Years of lower oil prices has put substantial financial pressure on Exxon, which has posted three straight quarterly losses this year for the first time on record.
However, according to Exxon, the self-correcting oil market will soon find itself in a supply shortage. The company told investors in October that current underinvestment in oil and gas production would leave the world short of needed fossil fuels in coming years.
For investors, despite all this negative press, and having seen XOM’s stock price fall over 50% this year, the supermajor has made no suggestion that it would be cutting its dividend.
Stephen Littleton, Exxon’s head of investor relations, said Exxon evaluates capital investment over a decades long time horizon, and that the coronavirus hadn’t changed its long-term view. Exxon hasn’t canceled any projects because of the pandemic, only delayed them, he said.
This is despite the fact that Exxon has taken on debt this year to cover its $15 billion dividend, while rivals like Royal Dutch Shell PLC and BP PLC have cut theirs.
The company cut $10 billion from its capital expenditures after the pandemic took hold and has said it could lay off as much as 15% of its global workforce, which would total about 14,000 jobs, including contract employees. Exxon also said it would reduce its capital budget to between $16 billion and $19 billion next year. Even with those cuts, Exxon would need oil prices to be between $55 and $65 a barrel in 2021 to cover its capital expenses and dividend, according to analysts estimates.
In response to investor concerns, Woods told investors in March that Exxon had stressed-tested a range of commodity prices, including low-price scenarios. If oil prices were to remain around $50 a barrel for years, a scenario Mr. Woods then called unlikely, Exxon’s debt levels would still be manageable.
Time will tell how well these oil firms can manage. Though one must wonder that even with a more green future ahead of us, oil will still play a large part in industry and utilities.
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