Actions of exxonmobile (XOM -4.07%) they were down about 5% as of 10:30 a.m. ET on Monday. Several factors weigh on the oil reserveincluding slightly lower crude prices, a sharp sell-off in the stock market, and some criticism of the company by President Biden late last week.
Oil prices were taking a breather on Monday morning. West Texas Intermediate, the benchmark US crude, was down more than 2% in morning trading, falling below $118 a barrel.
Several factors weigh on the price of oil. Chinese authorities said this weekend they will conduct mass testing for COVID-19 in Beijing following an outbreak linked to a nightclub, and China had already begun mass testing in Shanghai, the nation’s commercial hub. This has led some to hope that the world’s second-largest oil consumer will institute a new round of pandemic lockdowns, which could reduce global demand for oil.
Meanwhile, the persistence of high inflation in the US has many investors worried that the Federal Reserve will raise interest rates even faster than expected. But if the Fed hits the brakes on the economy too hard, could cause a recession, which would also lead to a drop in oil demand. Those concerns also weighed on the broader stock market on Monday.
Lower oil prices would cut into ExxonMobil’s profits, which explains why its shares are sinking. The company’s current high profits drew criticism from President Biden on Friday. The president specifically pointed to the oil company as part of the blame for today’s high gasoline prices, and said that “Exxon made more money than God last year.”
That statement was a bit of an exaggeration. While ExxonMobil made a lot of money in 2021 and is on track to make even more this year, it’s not the most profitable company in the country. Apple, Microsoft, AlphabetY JPMorgan Chase will make more money than ExxonMobil this year.
The president also criticized the company for using windfall profits on share buybacks instead of investing in producing more oil to help meet high demand. While ExxonMobil is returning a lot of money to investors through dividends and share buybacks, it intends to invest between $21 billion and $24 billion in capital projects in 2022. It is spending 50% more to produce oil and gas from its US operations in the Permian Basin and increasing its capacity to refine oil into gasoline and other refined products by more than 250,000 barrels per day this year.
ExxonMobil shares are under pressure Monday because oil prices were falling and because of President Biden’s rebuke. His criticism has investors more concerned that Washington could impose a windfall tax on the oil industry, and they may also fear ExxonMobil will be pressured to invest in new oil production that might not bring such attractive returns. Those risks could weigh on stocks in the short term, especially when combined with the possibility that demand will decline if the economy slips into a recession.