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Exxon and the Energy Sector

Exxon Mobil’s (NYSE: XOM) first-quarter earnings sky-rocketed 69 percent to $10.65 billion or $2.14 a share, revealing the extent that the company has been profiting from elevated oil prices,

Exxon Mobil’s (NYSE: XOM) first-quarter earnings sky-rocketed 69 percent to $10.65 billion or $2.14 a share, revealing the extent that the company has been profiting from elevated oil prices, wider refining margins and increased production. Today’s results indicate a broader return for the energy sector, reminiscent of the days prior to the financial collapse in 2008. The steady climb to these earnings numbers has been well documented in the news and subjected to constant analysis on Wall Street.

The results though, surpassed even analyst expectations of $2.06 per share, as natural gas and greater strength in its chemical division helped push profits even higher.  Chemical profits for the quarter were equal to $1.5 billion, indicating a rise in the demand for the products and potential strength in shares of companies with a focus on these chemicals.

Exxon’s production and exploration earnings added 49 percent with production up 10 percent to 4.82 million barrels of oil equivalent per day. Among the factors responsible for this was the purchase of  XTO Energy Inc., which helped the oil and gas goliath increase natural gas production by 24 percent.

The increase in gas demand is telling not only for the future of Exxon, but in terms of broader investments in the energy sector. For the most part companies across the board, from Shell (NYSE:RDS.A) to Transocean (NYSE: RIG) all rose. For Exxon,  Prices are still below those in the third-quarter of 2008, and Exxon earnings correspond with that, down $4 billion from their record highs when oil was selling close to $150 a barrel three years ago.

From an investment standpoint this means, several things. The first of these items being that oil has gone higher before and that despite investment banks from Goldman to Morgan Stanley warning that it may have reached its peak, there’s a possibility it will go there again. Compared with 2008, oil is actually in greater demand as a consequence of the continued growth of overseas economies and somewhat unfruitful efforts to diminish U.S. oil consumption through alternative energies. This could be interpreted to mean that domestic efforts would have to be ramped up even faster to manage prices, meaning that shares of oil companies both domestically and internationally may continue to be good investment.

Investors that have already taken long positions in major oil companies may want to keep at it while others looking to get in late in game may want to consider smaller, domestically focused oil and gas companies that are still trading at lower prices that may rise alongside increased stateside production.

Options in the latter group include United Hunter Oil (CVE: UHO), a Junior Oil and Gas company that has acquired 65% in the underdeveloped Huasna oil field in California and is currently pursuing three larger play prospects in the states. Junior oil and gas companies are less likely to receive attention given their typically smaller market-caps, but that could potentially change for the companies with plans to drill stateside as the administration continues its efforts to reduce imported oil from the major companies like Exxon Mobile (NYSE: XOM), Transocean (NYSE: RIG); and perhaps minimize dealings with the complication ridden British Petroleum (NYSE: BP), whose efforts at US coastal drilling have repeatedly proved problematic.