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Reliable Indicator Says Oil's Dip To Be Short-Lived:
A confluence of events has come together to spark a major drop in oil prices.
It won’t last long though according to one reliable indicator.
It all starts with supply and demand.
The current oil price drop is all about the demand side - specifically China.
China’s Zero-Covid policy is halting huge chunks of the nation’s economy at once.
Major cities can be shut down after a few cases are discovered.
It’s a mess.
But a few cities covering 100 million population aren’t doing much in a country with over a billion people.
It’s a hit. Especially for factories and shipping in and around cities.
But the china oil burning engine hasn’t dipped in decades and there’s no reason to expect this time to be any different.
Still though, fears of it’s impact have hit oil hard.
Oil price are just shy of their lowest levels all year after a 20% downswing in the last month.
But that’s just demand.
There’s still supply.
The supply side of the picture hasn’t improved at all.
Just look at this chart of U.S. Oil Production to see what the major critical “buffer” country in the oil markets is up to:
Well, it’s not up to much.
U.S. oil production is still more than 10% below its pre-pandemic peak production levels.
And it’s not rebound quickly at all.
At current growth rates U.S. oil production won’t return to new highs until 2024.
But here’s the indicator that says this all might be short-lived.
ExxonMobil (XOM) is one of the largest oil companies in the world.
Since its founding at part of the Standard Oil monopoly (well, technically Exxon and Mobile were two parts of Standard Oil monopoly), Exxon has been oil,
The company's shares have gone up and down with oil for as long as it’s been around.
Exxon shares haven’t dipped at all in the past few weeks while oil prices have corrected.
In fact, they have hit new multi-year highs within the last few weeks.
Here’s an Exxon stock chart:
Exxon isn’t a play on short-term oil price moves though.
It’s a fully integrated oil and gas company with big stakes in drilling, refining, distribution, and every step of the hydrocarbon energy sector.
As a result, it’s a lumbering giant of the oil industry.
Its shares haven’t budged in the current dip which is a great indicator the current oil price dip should be short-lived.