The Exxon stock price jumped 2.4% the day Exxon Mobil CEO Rex Tillerson was announced as the nominee for secretary of state. But there's more investors need to know before they get excited about the Exxon stock price in 2017...
Tillerson will have to formally leave Exxon Mobil Corp. (NYSE: XOM) to win confirmation and be sworn in as a cabinet member. But his experience with Exxon will guide his duties as secretary of state, and that could work to Exxon's benefit.
Before we explain how Exxon Mobil stock will perform in 2017, here's how the markets have reacted to Tillerson's nomination...
Exxon Stock Price Changes Since Tillerson's Nomination
Exxon stock has benefited from the post-election rally, seeing its share price jump over 6% since Nov. 8, though the Dow is up 9%.
Shares of Exxon Mobil stock appeared to shift favorably on the news Tillerson was being considered by the Trump team.
The chart below shows how the stock has performed since Tillerson's nomination was first mentioned in the media. We've also highlighted key dates in the nomination process.
As you can see, the biggest gains for the Exxon stock price occurred just before Tillerson's official appointment.
Investors are hopeful having Exxon's longstanding CEO as secretary of state will be good for the Exxon Mobil stock price. After all, Trump praised Tillerson as a "world-class player and deal maker," and chose him because "he does massive deals for the company."
Trump chose Tillerson for his knowledge of the "players" in the oil market and his ability to make deals. It's possible the deals he negotiates as America's top diplomat will be favorable to Exxon, too.
But Tillerson's relationship with Exxon Mobil also has a downside for the Exxon stock price in 2017.
XOM stock is down 3% from Tuesday's (Dec. 13) high and is currently trading at $90.64. XOM stock dropped following reports about conflicts of interest between Tillerson and Exxon.
Tillerson owns roughly $245 million worth of Exxon Mobil stock. Normally, Tillerson could sell his shares and reap a huge, tax-deferred profit as he enters government service.
But the situation is more complicated...
Fortune reports over $100 million of Tillerson's stock has not vested yet, meaning he can't sell the shares before taking the job as secretary of state.
That means he will either have to abandon his shares, and money, or vow to sell them when they fully vest. That could take until 2024. And that would mean Tillerson's decisions as secretary state could potentially impact the value of his Exxon stock holdings.
This sort of conflict of interest might make investors nervous.
So will Tillerson will be a blessing or curse for XOM stock? Here's our Exxon stock price outlook for 2017...
Will Exxon Stock Go Up in 2017?
[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]
While Tillerson's nomination might seem helpful for Exxon, his nomination comes during an overall shift in oil and gas production.
Dr. Kent Moors, Money Morning's Global Energy Strategist, says there's a major change underway in the oil markets.
But these changes might not benefit giants like Exxon Mobil. That's why it's best to avoid Exxon stock in 2017. Even with the post-election rally, the XOM stock price lags 3% behind the Dow Jones.
Some changes signal a positive outlook. A combination of Trump's plan to make America "energy independent" and rising oil prices stemming from the latest OPEC agreement have energy investors optimistic.
Trump has vowed to reduce America's reliance on energy imports and to scrap regulations on fossil fuel production in the United States.
Part of Trump's plan has come out through his appointments to run the federal government.
Besides Tillerson, Trump has also selected Scott Pruitt to run the EPA. As attorney general of Oklahoma, Pruitt was known for his fierce opposition to environmental regulations on the oil and gas industry. His leadership of the EPA will be less likely to aggressively enforce drilling restrictions.
And while Trump seems set to ease regulations on American energy producers, the price of oil is headed higher after the historic OPEC meeting on Nov. 30.
Not only did OPEC agree to its first production cut since 2008, it's gotten participation from key non-OPEC members. Russia has also announced it will participate in the cut, the first time it has worked with OPEC since 2001.
But these changes might not benefit Exxon Mobil. Moors - a 40-year veteran of the oil market - says major oil firms aren't poised to benefit.
"In 2017, things will get even worse for Big Oil..." Moors argues.
"Some players will lose out: The traditional high-dividend 'supermajors' - BP, Chevron, ExxonMobil, Royal Dutch Shell, Total SA, Eni, and Conoco Phillips - will see their long-term viability and short-term profitability severely challenged," explains Moors.
This is largely because the oil giants sold off important parts of their capacity when oil prices were low. Now that prices are rising again, they are less able to capitalize and still have debts to pay off, putting them one step behind.
And Moors says there's another key reason Exxon and other Big Oil companies are going to be in for a rough 2017. There is an even bigger shift in the oil markets coming, and American firms are not prepared. Read on to see where Moors says investors should focus in 2017...