The oil and gas sector is under threat of a breakdown from an epic multi-year trading range, traced all the way back to the early 2016 low, amid ongoing supply side pressure and mounting evidence of tepid demand. The OPEC production cap agreement, first teased way back in February 2016, is slowly breaking down as compliance declines amid a steady increase in output from U.S. shale producers.
Crude oil has been sliding lower throughout August and it is under continuing pressure on Wednesday after the largest inventory draw since September was offset by a big increase in production. U.S. output has hit the highest since July 2015.
The Energy Select Sector SPDR (ETF) (NYSEARCA:XLE), which is already down nearly 20% from its late 2016 high, is closing in on critical two-year support near $62. A breakdown here would setup a return to its early 2016 lows. The pattern is being mimicked by a number of individual stocks in the industry group. Here are six energy stocks in trouble:
Energy Stocks to Sell: Marathon Oil (MRO)
Marathon Oil Corporation (NYSE:MRO) shares are falling to test critical support near the $11-a-share level, down more than 40% from its late 2016 high. A decline below $11 would violate support from its June/July bottom as well as the May 2016 pullback low — setting up a possible return all the way back to the February 2016 low of $6.34, which would be worth a near 50% decline from here.
MRO will next report results on Nov. 1 after the close. Analysts are looking for a loss of 13 cents per share on revenues of $979.62 million. When the company last reported on Aug. 2, a loss of 17 cents per share vs. the 14-cent loss expected on a 4% year-over-year decline in revenues.
Energy Stocks to Sell: Exxon Mobil (XOM)
Exxon Mobil Corporation (NYSE:XOM) shares are breaking down below critical support at $79 — going back to the summer of 2016 — that the bulls have vigorously defended all year. Watch for a decline back to late 2015/early 2016 trading range near $72, which would be worth a 8% decline from here. This is all great news for Edge Pro subscribers, who are up more than 100% in their August $80 Exxon puts.
XOM will next report results on Oct. 27 before the bell. Analysts are looking for earnings of 83 cents per share on revenues of $63.59 billion. When the company last reported on July 28, earnings of 78 cents per share came in 8 cents below estimates despite a 9% rise in revenues.
Energy Stocks to Sell: Halliburton Company (HAL)
Halliburton Company (NYSE:HAL) is extending its recent two-month selloff, which itself is an extension of the 32% selloff from the late January high. This took shares below support from its September 2016 low. Next stop would likely be a test of the late 2015 support near $36, which would be a 10% downside move from here.
HAL will next report on Oct. 23 before the bell. Analysts are looking for earnings of 38 cents per share on revenues of $5.3 billion. When the company last reported on July 24, earnings of 23 cents per share were 5 cents ahead of estimates on a 29.3% rise in revenues.
Energy Stocks to Sell: Schlumberger Limited (SLB)
Schlumberger Limited. (NYSE:SLB) is among the weakest looking charts on this list, already down by nearly 30% from its January high to come within 10% of its January 2016 low. For reference, SLB shares hit a high of $110 back in 2014 before the OPEC vs. U.S. shale oil price war got started. The company was downgraded by FBR analysts in late July in anticipation of a lower growth rate weighing on earnings power.
SLB will next report results on Oct. 20 before the bell. Analysts are looking for earnings of 42 cents per share on revenues of $7.91 billion. When the company last reported on July 21, earnings of 35 cents per share beat estimates by 5 cents on a 4.2% rise in revenues.
Energy Stocks to Sell: EOG Resources (EOG)
EOG Resources Inc (NYSE:EOG) shares are falling below their June low, down nearly 2% in trading on Wednesday as the energy sector takes a hit. Watch for a move down to the mid-2016 trading range near $80, which would be worth near 6% decline from here. Already, EOG shares are down more than 20% from the high set in December.
EOG will next report results on Nov. 2 after the close. Analysts are looking for earnings of 16 cents per share on revenues of $2.5 billion. When the company last reported on Aug. 1, earnings of 8 cents per share missed estimates by 3 cents despite a 47.1% rise in revenues.
Energy Stocks to Sell: Hess Corp (HES)
Hess Corp. (NYSE:HES) shares are dropping through the $40-a-share level for the first time since February 2016 on Wednesday, violating prior support from the June reaction low. This caps a decline of nearly 40% from the high set in December. This sets up a move all the way back to the January 2016 low near $32.50, which would be worth nearly a 18% decline from here.
HES will next report results on Oct. 25 before the bell. Analysts are looking for a loss of $1.32 per share on revenues of $1.27 billion. When the company last reported on July 26, a loss of $1.46 per share was 15 cents below estimates on a 3.2% drop in revenue.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
