Much has been made of the recent rebound in crude oil — up some 40% from the March low — which dragged oil stocks and other energy firms higher through the beginning of the month.
But doubts are growing about the sustainability of the rally given still-high inventory levels, high U.S. production, and now, reports that the Saudis are ramping up production in a belief they’ve “won” the showdown with shale drillers.
Analysts at Barclays Capital recently warned clients that the “huge disconnect” between futures market pricing (where everything looks great) and the physical market (where indicators are signaling oversupply) cannot last. Some of the stronger positioned U.S. shale producers have said that at current prices, they are set for double-digit production growth.
Goldman notes that oil’s rally will ultimately be self-defeating.
As a result, I’m seeing fresh weakness in key oil stocks presenting new short-side opportunities for traders. Here are five blue-chip stocks from the energy sector worth a look on the short side.
Oil Stocks That Are Drying Up: BP plc (ADR) (BP)
BP plc (ADR) (NYSE:BP) shares are rolling down away from resistance near $43 that has persisted since the middle of April. The late March levels near $39 should come into play soon — a drop of about 7%.
Analysts at Goldman Sachs downgraded BP stock this week as the company awaits a decision on its liability from the Macondo oil spill.
Oil Stocks That Are Drying Up: Exxon Mobil Corporation (XOM)
Exxon Mobil Corporation (NYSE:XOM) shares have leveled off near $87 this month as its stochastic indicator rolls into a downtrend for the first time since late February. That drop resulted in a loss of nearly 8%. Exxon Mobil reported better-than-expected earnings back in late April, but profits still were down 46% on a year-over-year basis. Revenues were down 36%.
Another slide in oil prices will pressure the company’s upstream business, which suffered a loss of $52 million in its U.S. operations. I’ve recommended the June $87 puts to my Edge Pro subscribers.
Oil Stocks That Are Drying Up: Schlumberger Limited (SLB)
Schlumberger Limited (NYSE:SLB) has been stalled in a downward tilting consolidation range since the middle of April, unable to move away from its 200-day moving average. Support from its February high near $90 is now coming into play, a failure of which would put the $85 level in play for a drop of about 6%.
UBS analysts admit that SLB and other oilfield service providers will see revenues pressured by lower pricing as drilling activity remains moribund.
Oil Stocks That Are Drying Up: Halliburton Company (HAL)
Halliburton Company (NYSE:HAL) stock is rolling down below its 50-day moving average for the first time since crude oil was bottoming back in March. The ADX technical indicator is flashing a sell signal for the first time since February, suggesting a possible retest of lows near $40 could be in order — an 11% drop from here.
In response, I’ve recommended the June $46 puts to my Edge Pro subscribers.
Oil Stocks That Are Drying Up: Chevron Corporation (CVX)
Chevron Corporation (NYSE:CVX) shares are sliding lower after hitting quadruple-top resistance near $112. A drop to the March low near $100 looks likely, which would be a 5% hit from here.
The slide started on May 1 after the company reported quarterly results, with revenues falling 35% year-over-year. Upstream operations in the U.S. posted a loss of $460 million compared to earnings of $912 million in the year-ago period.