Stocks are drifting lower on Monday after OPEC/non-OPEC jawboning out of a meeting in Saint Petersburg failed to turn energy market sentiment around. Saudi Arabia said it would cut allocation to customers in August. And officials said they were committed to seeing an extension of the current production cut agreement beyond March 2018 if needed.
The market collectively yawned. The United States Oil Fund LP (ETF) (NYSEARCA:USO) is up 1.7%, but it has formed an inside bar candlestick pattern by remaining within the confines of Friday’s big pullback. That suggests the short-term downtrend pattern remains intact and further downside pressure for energy prices is imminent.
Oil and gas stocks are rolling over in sympathy with the VanEck Vectors Oil Services ETF (NYSEARCA:OIH) down for the third day in a row with a loss of 1.6%. That reversed a brief excursion above the 50-day moving average, which was the first move above that level since early February for the industry group.
The oil majors are under some pressure as well, with Exxon Mobil Corporation (NYSE:XOM) dropping to test critical resistance of nearly a year-long trading range near $80. A breakdown here would set up a reversal of the gains earned coming out of the February 2016 oil price low driven by rumors, hopes and eventually confirmation of OPEC’s supply freeze agreement.
XOM stock is already down more than 13% from its 2016 high, but it has been mired in an ultra-tight consolidation bounded between $80 and $82.
Oil prices have been drifting lower as commodity traders lose faith in OPEC amid bloated inventories, a ramp up in U.S. shale production — amid a lowering of all-in costs — and tepid U.S. gasoline demand this summer as the U.S. consumer apparently retrenches. But energy stock investors are refusing to admit the fundamental oversupply issues remain.
OPEC’s increasingly desperate tone could be the final straw. In anticipation, I have recommended the XOM August $80 puts to Edge Pro subscribers.
Exxon will report results on July 28 before the bell. Analysts are looking for earnings of 85 cents per share on revenues of $65.3 billion. When the company last reported on April 28, earnings of 95 cents per share beat estimates by 8 cents on a 29% rise in revenue.