This past year might go down as the worst in ExxonMobil's (NYSE:XOM) history. Thanks to cratering oil prices, the oil giant lost billions of dollars through the third quarter and is expected to record a historic writedown approaching $20 billion for the fourth quarter. Exxon therefore failed to increase its dividend for the first time in decades. As a result, its stock price cratered 40%, which caused it to briefly lose the title of the country's largest oil company.

However, with this brutal year nearly in the books, it's time to look ahead at what 2021 might bring. Here's the case for and against seeing the oil giant bounce back in the coming year.

An offshore oil platform with the sun rising in the background.

Image source: Getty Images.

The bull case for ExxonMobil's stock in 2021

The main issue weighing on ExxonMobil's stock in 2020 was oil prices, which tumbled more than 20% on the year because the COVID-19 outbreak torpedoed demand. That slump cut into Exxon's cash flow, forcing it to slash capital spending and borrow heavily to bridge the gap.

However, 2021 could be a better year for oil prices. First, most industry watchers expect oil demand to recover sharply in 2021. For example, the International Energy Agency (IEA) anticipates that gasoline and oil demand will be "particularly strong" in 2021, returning to about 99% of their pre-pandemic levels. That should benefit both Exxon's oil production business and its refining assets. As a result, it should generate more cash in 2021, which could help take some of the pressure off its stock price. 

Another potential catalyst for the company in the coming year is an improvement in its balance sheet. Exxon's total debt rose by more than $20 billion from the third quarter of 2019 through the same period of this year. However, Exxon completed a review of its forward business plan in late 2020, which will see it prioritize its investments in its highest value assets. As a result, the company plans to sell its less strategic ones in the future, which would give it the cash to repay debt. 

If both oil prices and Exxon's balance sheet improve in 2021, it will help lift the weight on Exxon's stock price, which could bounce back sharply.

The bear case for ExxonMobil's stock in 2021

While there's reason to believe the coming year could be a much better one for ExxonMobil's stock, there are some downside risks that bear watching. Topping the list is the potential that oil prices might not recover much further in the coming year. Two factors could affect oil prices.

First, one of the potential drivers of a rebound in oil consumption is the anticipation that vaccines will roll out quickly in 2021, putting an end to the pandemic. However, it might take a lot longer than expected to get the virus under control, since vaccines might run into production issues, transportation problems, resistance from large swaths of the population, or ineffectiveness as the virus mutates. That could force governments to continue restricting travel, which would affect oil demand.

On the other hand, producers might start adding back supply too quickly, which could keep a lid on oil prices. As it stands right now, the IEA expects that it will take the economy a full year to burn off the current excess inventory. Thus, if producers restart their pumps too soon, it could cause storage levels to balloon once again and push prices lower.

In addition to those potential oil market issues, Exxon faces internal headwinds that might keep a lid on its stock price in 2021. For starters, the company has significantly reduced capital spending, which will probably cause its production to decline in the coming year. Meanwhile, it might have trouble selling assets, which could affect its ability to repay debt. If that happens, the company might have no choice but to reduce its dividend.

Don't bank on a bounce-back in 2021            

On the one hand, it seems reasonable to believe that ExxonMobil's stock could rebound in 2021. If the vaccines give the global economy a shot in the arm, causing oil demand and prices to bounce back, oil stocks like Exxon should follow.

However, plenty of downside risks remain for the oil market. On top of that, the oil market might recover, but Exxon could continue to sputter if its business underperforms expectations and its balance sheet doesn't improve. It's no sure thing that Exxon's stock bounces back in the coming year.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.