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Exxon Mobil (NYSE:XOM) seems to be the favorite pick among investors in the energy space due to its sheer size and triple A credit rating (only oil major to have such a rating). Furthermore the stock is even gaining more attention at present because it has rallied 8%+ since the 24th of August. Do I think Exxon will keep rallying? Yes, but I think there are more favorable stocks in this space at the moment. Investing in energy at the moment all depends on your take where oil prices are going. Crude oil has rallied hard out of its August 24 low and is now approaching $50 a barrel (see chart)

Source: StockCharts.com

I believe we have printed a firm bottom in the entire commodity sector and not just oil. The Jefferies CRB Global Commodity ETF, which holds a basket of commodities (both hard and soft), also has rallied sharply since August, which reinforces my assumption. Furthermore, investors must consider that commodities have rallied hard in the past month in the face of a strong dollar. The dollar, surprisingly, has not sold off (which would have boosted the commodity rally even more) after the poor US job numbers recently reported for August. Expect to see a major reversal at next month’s announcement (as I believe these numbers can be doctored by the powers to be), but it still won’t be enough for the Fed to raise rates because the economy is still fundamentally weak. Sooner or later the currency markets will extrapolate that the Fed will never raise rates which should cause a dollar sell off.

So what does all of the above mean for Exxon? Well, rising oil prices will undoubtedly make its stock rally (as we have seen recently) but upstream companies should significantly outperform integrated companies from here going forward.

Firstly lets look at how the stock performed in the past when oil prices were rallying hard (2007-2008 when oil prices went to $147 a barrel). In the chart below, Exxon Mobil underperformed other upstream producers such as EOG Resources (NYSE:EOG) and Hess (NYSE:HES). It also underperformed Chevron (NYSE:CVX) because Chevron, although being also integrated, has a far smaller downstream division compared to its upstream activities.