Latest / Stock Picking with Fexingo: Individual Equities, Research, and Building a Concentrated Portfolio / Why ExxonMobil Is Getting Crushed in June 2026
Transcript
- Lucas: ExxonMobil is down 6.3 percent over the past five days as of this morning. That's not just a bad week — that's a serious shredding for a stock that's supposed to be a defensive energy anchor. Luna: Six percent in a week is big. And it's not just Exxon — Chevron dropped over 7 percent in the same stretch. Is this purely about the Strait of Hormuz news? Lucas: That's the obvious headline, right? Over the weekend Iran reportedly closes the strait again, Vance heads to Switzerland for talks — it sounds like the kind of geopolitical shock that should send oil stocks higher, not lower. But the market is reading it differently. Luna: So what's the market seeing that the headline doesn't capture? Lucas: The key is that the Strait of Hormuz closure, if it sticks, actually hurts integrated majors like Exxon more than it helps them. Because they're not just producers — they're refiners. A sudden supply disruption jams up physical crude flows, refining margins get squeezed, and the downstream earnings take a hit. The market is pricing that in. Luna: And if it's worth a coffee to you, that's the link — buy me a coffee dot com slash fexingo. Just a small way to keep this show going. Lucas: Exactly. So back to Exxon — the refining piece is the part most people miss. In a typical supply shock, crude goes up, but the crack spread — the profit from turning crude into gasoline — gets compressed. Exxon's refining business is huge. Last year it contributed something like 40 percent of earnings in some quarters. Luna: So the market is saying: higher crude prices aren't enough to offset the refining margin pain. That's a pretty specific read. Lucas: Right. And there's a deeper structural concern underneath. Look at the broader energy sector — the S&P 500 energy index has been underperforming for months. The market is starting to treat big oil as a value trap, not a value play. Luna: Value trap meaning the low P/E ratio looks tempting, but the earnings are going to keep deteriorating. Lucas: Exactly. Exxon trades at around 12 times forward earnings — that's cheap on the surface. But if refining margins are structurally compressing because of the energy transition, and if demand growth is peaking in developed markets, then those earnings are on a downward trajectory. The multiple might stay low because the earnings base itself is shrinking. Luna: And the buybacks don't fix that. Exxon has been aggressive — they bought back something like $30 billion in stock last year. But if the underlying business is shrinking, buybacks are just a band-aid. Lucas: Exactly. It's like a leaky bucket — you can keep filling it, but the water level drops. And the dividend yield, which is still around 3.8 percent, only looks safe if the cash flow holds up. The Strait of Hormuz closure threatens that cash flow right now. Luna: Let's talk about that closure specifically. Iran has threatened this before — in 2019, in 2023. The strait carries about 20 percent of the world's oil. A real shutdown would be catastrophic for global supply. But so far, the market seems to think it's a negotiating tactic, not a sustained blockade. Lucas: That's the market's bet. The fact that oil prices haven't spiked — Brent is actually down about 2 percent on the week — tells you traders are pricing in a diplomatic resolution. The talks in Switzerland are the key. But for Exxon, even a short closure creates disruption in physical flows. Refineries in Europe and Asia that rely on Middle Eastern crude have to scramble. That's costly. Luna: And it comes at a bad time. Refining margins were already under pressure because of new capacity coming online in the Middle East and Asia. So Exxon is getting hit from both sides. Lucas: Exactly. The long-term thesis for integrated oils used to be: you have this diversified model where upstream and downstream balance each other. If crude goes up, production profits rise; if crude goes down, refining margins expand. But in the current environment, both are getting squeezed. Upstream faces peak demand concerns, downstream faces overcapacity. The diversification benefit has eroded. Luna: Is there any bull case left for Exxon? I mean, they have a massive balance sheet, they're investing in low-carbon — carbon capture, hydrogen, lithium. Could that be a growth story? Lucas: It could be, but it's a long-term story. The low-carbon investments are still tiny relative to the core oil and gas business — maybe 5 percent of capex. And the returns on those projects are uncertain. The market is not going to give Exxon credit for a speculative future while the core earnings are deteriorating. Luna: So the stock might continue to drift lower until either the Strait issue resolves clearly, or until we see a definitive sign that refining margins have bottomed. Lucas: Right. And the risk is that this is not a cyclical dip but a structural change. If the energy transition accelerates, if electric vehicle adoption keeps rising, if refining overcapacity persists — then Exxon's earnings power might never return to prior peaks. That's what value traps are made of. Luna: How does this compare to Chevron? Similar story, or are there nuances? Lucas: Chevron has a slightly different mix — less exposure to refining, more to international production. But the pattern is the same. Chevron's down 7.3 percent, which is even worse. Both are getting hit by the same macro forces. The one difference is that Chevron has been more aggressive with buybacks relative to market cap, but that hasn't helped this week. Luna: So for a stock picker today, the question is: do you buy the dip, or do you wait? The yield is attractive, the P/E is low, but the headwinds are real. Lucas: I think you wait. Not because Exxon is a bad company — it's an exceptionally well-run business with world-class assets. But the macro is too uncertain. If the Strait closure escalates, oil could spike and the stock might rally in the short term. But that's a trade, not an investment. For a concentrated portfolio, you want to own stocks where the risk-reward is skewed in your favor. Right now for Exxon, the risks are more visible than the catalysts. Luna: So the takeaway for listeners: even a blue-chip energy stock with a 3.8 percent dividend and massive buybacks can get crushed in a week when the market re-evaluates the entire business model. Lucas: Exactly. And that's the value of active stock picking. You can't just buy the low P/E and go to sleep. You have to understand what's driving the earnings underneath. The Strait of Hormuz closure is a stark reminder that sometimes the market sees a storm coming long before the headlines confirm it. Luna: Great perspective. Let's see how the talks in Switzerland unfold. Lucas: Yeah. We'll be watching.