The Paris Agreement and Exxon

The historic Paris Climate Agreement, signed onto by 195 countries, including the U.S., China, all of Europe and many developing nations, places limits on world temperature growth to no more than 2 degrees with an ultimate goal of reducing that to 1.5 degrees. This agreement spells trouble for the long-term prospects of oil companies, including Exxon (NYSE:XOM). The goal of the agreement is to rapidly decrease the global dependence on fossil fuels to limit global warming.

Oil companies are expected to begin to fill the full impact of the agreement beginning in 2020. Many oil companies have what are called stranded assets, or oil reserves they will never be able to drill due to the decreased reliance on fossil fuels. These assets are included in their valuations, meaning they could be worth far less than reported. One telling call is the one made during the climate talks leading up to reaching the agreement. Banks full impact of the agreement, banks and insurance companies to report the percentage of assets they hold as shares in oil companies, as they are expected to lose value.

Crude Prices Fall

At the same time, crude prices fell on Friday as OPEC announced they will not cut global production. Shares of XOM fell with the crude prices to close at $77.28, down by 0.87 percent. West Texas crude prices closed at $34.56 a barrel on Friday, and Goldman Sachs is predicting that the prices for oil per barrel will fall to $20 per barrel.

Recent Stock Results and Lagging Performance

Since the same quarter a year ago, XOM revenues have fallen by 37.4 percent. The company’s share price has dropped by 14.64 percent during the same time period, underperforming the S&P 500. Similarly, Exxon’s return on equity is lower than in the same quarter a year ago, indicating weakness.

(Nasdaq.com)

Solar Stocks Soar

While the Paris Agreement is expected to bring long-term value decreases for the oil markets and companies, it resulted in the opposite this past week for solar companies. One company of interest is First Solar, Inc., (NASDAQ:FSLR) which had its 50-day moving average crossover break 200. Shares of the company have also increased in value by 21 percent in the last 4 weeks. Another winner is SolarCity, Inc. (NASDAQ:SCTY), which saw its stocks soar by 50 percent in the past week. In addition to the Paris Agreement, another move helping boost the solar energy company is the recent spending deal reached by Congress, which will extend a tax credit for such companies if it is ultimately passed.