Energy stocks are under some serious pressure Wednesday as crude oil prices suffer a big move to the downside: The United States Oil Fund LP (ETF) (NYSEARCA:USO) is down about 4% in mid-day trading, taking it below its 50- and 200-day moving average in what is the largest one-day decline since early March.
There are a number of catalysts driving the move lower. Inventories are at record highs. U.S. shale production is ramping up aggressively. And OPEC, in the wake of its production-freeze agreement late last year, appears to be once again losing market share — the recapturing of which was the reason the oil sheiks engaged in their price war in 2014 in the first place.
Much depends on the upcoming OPEC policy meeting on May 25, at which time a decision is expected on a possible six-month extension to the production-freeze agreement depending on the cooperation of non-OPEC producers (such as Russia). There is no easy answer for OPEC. If they continue their production cap, U.S. shale producers will fill the void. U.S. rig counts are up for 14 straight weeks returning output to levels not seen since April 2015.
While there is a risk of further “verbal intervention” from OPEC officials — something that has time and time again boosted energy stock and oil prices since a production freeze agreement was first teased in February 2016 — the sector looks vulnerable for further losses. Here are five stocks to avoid or sell.
Oil Stocks to Sell: Exxon Mobil (XOM)
Exxon Mobil Corporation (NYSE:XOM) shares are threatening to break down below critical support in the $80-$81 range that’s been in place since last April. A breakdown here should put XOM’s early 2016 lows in play, which would be worth a 12%-plus decline from here.
In anticipation, I have recommended the May $80 XOM puts to my Edge Pro subscribers which are already up nearly 10% since recommended on Tuesday.
XOM will next report results on April 28 before the bell. Analysts are looking for earnings of 90 cents per share on revenues of $68.1 billion.
Oil Stocks to Sell: Chevron (CVX)
Chevron Corporation (NYSE:CVX) shares have sliced below their 200-day moving average for the first time since December 2015, ending a three-year uptrend that saw shares nearly double in value.
The breakdown marks an acceleration of the pullback that started December and has already seen the stock lose some 12% of its value on growing doubts about the ability of energy majors to continue to cut expenses to insulate earnings from the revenue pressure being faced.
The company will next report results on April 28 before the bell. Analysts are looking for earnings of 89 cents per share on revenues of $36.8 billion.
Oil Stocks to Sell: Transocean (RIG)
Transocean LTD (NYSE:RIG) shares are falling further away from their 200-day moving average, ending a two-month consolidation above that level, returning to prices not seen since November.
The decline continues a long consolidation between $8 and $18 going back to 2015. Watch for a return to the 2016 trading range near $10, which would be a 10%-plus decline from here.
The company will next report results on May 3 after the close. Analysts are looking for a loss of six cents per share on revenues of $734 million.
Oil Stocks to Sell: Noble Drilling (NE)
Shares of Noble Corporation Ordinary Shares (UK) (NYSE:NE), the offshore drilling contractor, have broken below their March low to return to levels not seen since November. This represents more than a 30% decline from recent highs and a 80%-plus decline from its 2013 high.
With U.S. shale producers aggressively lowering their all-in cost of production over the last few years, pushing down the price at which marginal supply comes into the market, it further reduces the profitability and drilling activity of expensive offshore projects NE depends on.
The company will next report results on May 4 after the close. Analysts are looking for a loss of 18 cents per share on revenues of $366.8 million.
Oil Stocks to Sell: Halliburton (HAL)
Oilfield services provider Halliburton Company (NYSE:HAL) has fallen roughly out of a two-month consolidation range, dropping away from support near its 200-day moving average as its total decline from its January high approaches 20% — the threshold for an outright bear market. A drop to its September low would be worth a further 15% decline from here.
There remains lingering hope, however: Analysts at HSBC Securities recently initiated coverage with a “buy” rating. The company will release results on April 24 before the bell. Analysts are looking for earnings of three cents per share on revenues of $4.3 billion.
Anthony Mirhaydari is founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. A two-week and four-week free trial offer has been extended to Investorplace readers. Redeem by clicking the links above.
