Why ExxonMobil shares are rising today

What happened

Shares of ExxonMobil (XOM 1.83%) rallied as much as 3.1% at 3 p.m. ET on Friday. The main catalyst fueling the oil stocks rebound was the rise in crude prices.

So what

After falling for several days, crude oil prices rebounded on Friday. WTI, the main benchmark for U.S. oil, rose 3% before posting a 0.3% gain to close at $86.87 a barrel. Meanwhile, Brent crude, the global benchmark for crude oil, closed a little higher, up 0.7% at $93.02 a barrel.

The spike in oil prices was the prospect that OPEC could cut production due to the potential for slowing demand as the global economy weakens. Oil traders have also been looking at the possibility that the Atlantic hurricane season could drive production offline in the Gulf of Mexico, which would impact supplies.

The prospect of higher prices would be a boon for ExxonMobil. Exxon produced a prodigious $20 billion in cash flow from operations in the second quarter, thanks in part to higher oil prices. While the recent drop in oil prices will likely cause it to produce less cash flow in the second quarter, a rebound in crude would boost its future cash flow.

In other news, After the market closed yesterday, Exxon and its joint venture partner Shell (SHEL 1.58%) announced their intention to sell their California oil joint venture. Exxon owns a 48.2% stake in Aera Energy, which it formed with Shell in 1997. They are selling the company to German asset manager IKAV for $4 billion. This brings Exxon closer to achieving its goal of selling $15 billion in assets while focusing more on its best assets.

Now what

ExxonMobil has benefited from higher crude prices this year. They allow the company to generate a source of cash and obtain higher prices on the non-core assets it sells. This provides the oil company with more cash to reinvest in its core assets and energy transition initiatives while returning capital to shareholders through a rising dividend and share buyback program. This combination of business expansion and cash returns makes Exxon a potentially attractive investment in oil stocks for those who believe crude prices are rising.

Matthew DiLallo has no position in the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.

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