Inflation is running rampant, rising 7.5% in January, the highest it's been in 40 years, and gasoline prices are at a seven-year high. The average price paid at the pump for regular gas is $3.42 a gallon.
We've gone from oil prices cratering more than seven years ago to once again nearing triple-digit levels. During that time ExxonMobil (XOM 0.57%) has gone from pariah and kicked out of the Dow Jones Industrial Average to one of the most valuable stocks on the market again.
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It was short-sighted back then to think Exxon's best days were behind it, and probably just as myopic to think the current good times will go on forever, too. While it seemed obvious to me at the time that the oil giant was a great buy when it was most depressed, does that make it the best oil stock to buy today? Yes it does, and here's why.
Priming the pump of growth
Business is booming for Exxon, the largest U.S. oil company, and the company recently reported fourth-quarter earnings showing that it generated $8.9 billion in profits, the most it's made since 2015.
The cost for a barrel of West Texas Intermediate (WTI) oil actually briefly traded at negative prices for the first time ever in 2020 as global economies shut down due to the pandemic, and Brent crude plummeted to just $9 a barrel.
Prices rebounded, though, to around $40 a barrel by July, and remained there for the rest of the year, only to take off once again last year. Today they stand at just over $92 a barrel.
Exxon's upstream oil and gas production operations generated a $6.1 billion operating profit this quarter, the highest in almost two years. That's encouraging it to boost production on its own, both in the Permian Basin in the U.S. and off the coast of Guyana where it's adding an extra vessel to bring capacity to more than 340,000 barrels per day. Exxon expects capacity in Guyana to reach 800,000 barrels by the end of 2025.
With OPEC, or the Organization of the Petroleum Exporting Countries, refusing entreaties to boost output, instead maintaining its 400,000 barrel per day rate, it ensures oil prices will remain high. OPEC's oil represents about 60% of all oil traded globally.
Image source: Getty Images.
Better than ever
Exxon says production of oil and gas is up by 2% from the year-ago period on a recovery in demand. Profits also improved in its refining segment, reaching the low end of a range they have been in over the past decade despite slack demand in jet fuel.
The gains, though, allowed Exxon to pay back almost all of the debt it took on during the pandemic, and it's so flush with cash now that it will kickoff a return to buying back its stock with a $10 billion repurchase program.
With cash flows from operating activities of $48 billion, the highest they've been since 2012, Exxon hiked its dividend once again. For 39 consecutive years the oil giant has lifted its payout putting it solidly in the realm of Dividend Aristocrats.
Everything points to growth
Global oil production is expected to rise considerably over the next few years; gas prices are soaring, with at least one industry expert predicting $5-a-gallon gas in our future, maybe even as high as $7 a gallon.
Europe is already paying those kinds of prices, with countries such as Netherlands and Norway paying nearly $9 per gallon. In Hong Kong, it's over $10 a gallon.With non-U.S. upstream operations accounting for 71% of total segment operating profit and 46% of total operating earnings, ExxonMobil looks better and better.
We don't hear much about peak oil like we used to, and despite the drive for alternatives to fossil fuels -- even Exxon says it's exploring various renewables -- oil is here to stay in our daily lives. Betting on the biggest player in the field isn't such a bad idea at all.
