How Bad Can It Get For Exxon Mobil Corporation (XOM)?

Posted by Lynn Eisler January 6, 2015 0 Comment 1395 views

Investors in Exxon Mobil Corporation (NYSE:XOM) and other crude producers are obviously worried about the almost relentless drop in oil prices.  There is no telling for sure when or where the prices of oil will stabilize, if indeed that will ever happen. The unwavering OPEC that has declined to cut output is also putting more pressure on American producers because they incur bigger production costs than their Middle East counterparts.

In the case of Exxon Mobil Corporation (NYSE:XOM), the weak demand and oversupply in the market is just one of the problems. The company’s exposure to Russia is also another headache.  From the decline of the Russian ruble to the economic sanctions against Russia by the U.S. and its European allies, there are enough challenges for Exxon Mobil to deal with in the oil industry.

Currency translation

Because of the recent massive fall in ruble, analysts have cited that Exxon Mobil’s 4Q performance would likely record an adverse impact. As a global oil company, Exxon Mobil is exposed to the problems of currency transaction, and the trouble with ruble is one of them.

Economic embargoes

The other issue that confronts Exxon Mobil Corporation (NYSE:XOM) during these hard times are the economic embargoes against Russia. Exxon Mobil has ties with Rosneft, one of the major oil companies in Russia. The companies entered into an agreement to explore oil in Russia’s Arctic water and Exxon Mobil was betting on the project to grow its production for the long-term.

Additionally, Exxon Mobil spent nearly $3.2 billion in exploration cost and was hoping to recoup the investment. However, the sanctions appear to be scuttling its hopes as the Arctic has remained largely undeveloped. As if that is not bad enough, Rosneft is so determined to not let the sanctions get on its way that it recently hinted at plans to look for ways to explore the Arctic without the help of Exxon Mobil Corporation (NYSE:XOM). That means that Exxon Mobil is staring at a possible loss of attractive revenue.

Add the challenges facing Exxon Mobil Corporation (NYSE:XOM) in Russia to the falling oil prices and you see a company that is hard-pressed from almost all sides. It remains to be seen how the company navigates the way out of these problems.

About Lynn Eisler

Lynn Eisler is a national news reporter focusing on economic issues, data analysis and the financial health of state and local governments. Lynn has been honored with the H.L. Mencken Award for Investigative Reporting, the Champion of Justice Award for reporting on the drug war, and the John Hancock Award for business reporting. Lynn was also a Knight Medical School Fellow at the University of Michigan.

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