There’s Two Reasons This Oil Company Will Fall

Let's take a second look at yesterday's oil rally

Today, I’m recommending a bearish trade on Equinor ASA (NYSE:EQNR), the Norway-based oil and gas exploration and production company.

My indicators are giving neutral readings this week, a mild downgrade from last week’s bullish readings. Technically, that makes sense, as the S&P 500 index is sitting just a few points below where it ended last week.

We’ve seen a lot of choppy trading this week, as you can see in the daily chart of the index below. That continues to reinforce my belief that we’re going to see lower prices from here.

Daily Chart of S&P 500 Index (SPX) — Chart Source: TradingView

In other words, every day that passes where the market is not making up lost ground tells me that it’s less and less likely we’re going to see a V-shaped bottom like we saw at the end of 2018.

Energy stocks bounced after President Trump’s announcement that Russia and Saudi Arabia were getting close to a production-cut deal. The jump helped carry the market a little higher yesterday. But if we look a closer at that claim, it’s less positive than investors thought.

Russia Denies Talking with Saudi Arabia

President Trump tweeted that Saudi Arabia and Russia were going to cut production by at least 10 million barrels per day, and oil prices jumped higher.

A few hours later, President Putin’s press secretary Dmitry Peskov said Russia and Saudi Arabia weren’t talking about deals at all. He also denied that they had any planned meetings this week.

Saudi Arabia then said that it was calling for an emergency meeting of the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC countries.

According to Bloomberg, Saudi Arabia wants other, non-OPEC countries — like the U.S. — to consider cutting production along side OPEC. That’s something the White House has already indicated it doesn’t want to do.

The end result is a lot of confusion and uncertainty, and investors may see fit to exit energy stocks while they can collect a small profit.

EQNR has COVID-19 Problems

The price of oil isn’t the only thing affecting EQNR. The COVID-19 outbreak forced it to stop work on an offshore oil development because an employee tested positive for the illness. The Martin Linge field was scheduled to start production at the end of the year, and the company doesn’t know if that will be delayed.

EQNR is nearing the top of the gap it formed on March 9, and it looks like that level will act as resistance. Any negative news about oil prices could hurt it, and EQNR still has to deal with possible delays on a major project.

Equinor ASA (EQNR) Daily Chart

Daily Chart of Equinor ASA (EQNR) — Chart Source: TradingView

The stock carries one fundamental risk — the delay of an important project — and a broader systemic risk — another collapse in oil prices. It is an excellent target for a bearish put option.

Because the price of oil is up right now, I don’t want to bet on EQNR falling to its recent lows in the $8 to $9 range. I’ve picked a strike price closer to it’s current levels.

Buy to open the Equinor ASA (EQNR) July 17th $12.50 Puts (EQNR200717P00012500) at $1.60 or lower.

InvestorPlace advisor Ken Trester also brings you Power Options Weekly, which delivers 5 new options trades and his latest trading advice to you each Friday. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.


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