The energy sector and WTI crude oil prices spiked following the escalation in the Middle East after Iran launched a missile attack on Israel earlier this month. Initial fears of conflict disrupting global oil supplies, mainly through the vital Strait of Hormuz. This drove a rally across the energy market. However, with signs emerging that Israel will not retaliate by targeting Iranian oil fields, tensions have eased, and the sector has experienced a pullback.

Over the past week, WTI crude prices fell from nearly $76 per barrel to $70.25, while the energy sector, represented by the XLE ETF, declined by about 2%.

Despite the recent decline, the overall outlook for the energy sector remains positive. On October 1, when the conflict initially flared, the XLE ETF broke out of a lengthy consolidation phase and surged above several key moving averages, including the 200-day simple moving average (SMA).

This breakout signaled a shift in momentum, with many of the sector’s top holdings rallying alongside the ETF. Although prices have retraced recently, the XLE ETF continues to trade above its 200-day SMA, a sign that the recent dip may represent a healthy pullback within a new uptrend.

The Pullback Offers an Opportunity in XOM

One stock that offers a compelling buying opportunity during this pullback is Exxon Mobil (NYSE: XOM). Exxon Mobil, the largest U.S. oil company and the biggest holding in the XLE ETF has a market capitalization of $474 billion. Like the broader sector, XOM has retraced slightly, falling 2.27% over the past week.

However, it remains above a critical support level at $120, which previously served as resistance. This level’s newfound role as support suggests that the stock could be forming a higher low, indicating the potential start of an uptrend.

From a valuation perspective, Exxon Mobil looks appealing. The stock trades at a price-to-earnings (P/E) ratio of 14.41, with a forward P/E of 14.69, implying reasonable growth expectations. Additionally, Exxon offers a dividend yield of 3.16%, adding an income component to its investment appeal. This solid technical setup, attractive valuation, and reliable dividend combination make Exxon Mobil appealing for investors looking to benefit from the sector’s potential upside.

Analysts See Upside as Earnings Approach

Analysts remain optimistic about Exxon Mobil’s prospects, especially with geopolitical risks still present. Based on 20 analyst ratings, the stock holds a consensus Moderate Buy rating, with a consensus price target of $131.44, implying more than 9% upside. Some analysts are even more bullish. On October 10, Scotiabank upgraded the stock to Sector Outperform and set a price target of $145, forecasting nearly 20% upside. More recently, on October 17, Bank of America reiterated its Neutral rating with a $124 price target.

The company’s following earnings report on November 1 will be an essential catalyst for the stock. In its most recent earnings release on August 2, Exxon Mobil posted earnings per share (EPS) of $2.14, beating expectations by $0.10. The company also reported quarterly revenue of $93.06 billion, surpassing analyst estimates of $90.09 billion and reflecting a 12.2% increase year-over-year. With solid financial performance and steady revenue growth, Exxon Mobil is well-positioned to benefit from any future disruptions in global oil supply.

XOM is Positioned to Grow Despite Possible Disruptions

While tensions between Israel and Iran have de-escalated for now, the geopolitical situation remains uncertain. If conflict resurfaces and oil flows through the Strait of Hormuz are disrupted, Exxon Mobil’s extensive upstream business could benefit significantly. The company’s global footprint also provides a hedge against regional risks, allowing it to maintain production even during periods of geopolitical instability.

The energy sector’s pullback presents a potential buying opportunity for long-term investors who forecast upside. The sector’s strong technical positioning and resilient price action suggest that the recent dip may just be a pause in a new uptrend. With its solid fundamentals, attractive valuation, and dividend yield, Exxon Mobil stands out as a top option within the sector for individual stock pickers. Investors should watch for the company’s upcoming earnings report for additional insights into its financial outlook and growth potential.