Exxon Mobil Corporation (NYSE:XOM) CEO Rex Tillerson made a statement this morning asserting that the firm would remain buoyant despite the vulnerabilities of the global oil market. Prices of crude fell to their lowest point in 16 months yesterday as sluggish demand impacts the sector.
Tillerson said that the company would continue to fund all of its investment funds and that there was no expectation of a long term effect from the current lows. World wide energy demand is falling due to decreased demand from Europe and some emerging economies where growth has not been as expected.
Libya’s return to normal production has increased the supply of oil and added to the downward pressure on prices. The embargo on Iran has, however, continued to restrain the availability of oil. Supply is not expected to face any grievous contraction in the coming year but demand remains low. That’s causing problems in the industry.
The executive was less forward on what lower prices would mean for Exxon Mobil over a longer term. The company is the world’s second biggest by market cap and has relied on comparitively high oil prices for growth in the last ten years.
The low in oil prices is, as always, having an impact across other industries. Costs will be lower for producers as the low in crude causes a lower price point in gasoline. Some firms will not benefit quite as much from the correction.
Chesapeake Energy Group (NYSE:CHK) is relying on high gasoline and oil prices to drive up demand for its natural gas product. If oil continues to be less expensive than it was last year the substitution effect will lose steam further impacting the company’s ailing business model.
High oil prices will have a similar effect across the renewable energy sector. Growth in that sector has been one of the most publicized arms of President Obama’s energy and industry policies. A low in oil will have both positive and negative impacts on the President’s hunt for reelection.
Exxon Mobil will not be adversely effected in the short term by the sluggish global demand. If, however, China’s growth stalls or Europe continues to slump under its monetary and debt crises there will be lower demand for some time to come. That will cause problems for the petroleum giant.
Needless to say Exxon will survive the slump but there might be a slow down in the firm’s growth. That will not sit well with investors who have seen the firm’s stock slide since April. Exxon Mobil is down by 0.66% to 77.32 at time of writing.
