Oil Demand Is Nowhere Near Sustainable for Halliburton

After more than half a year dealing with the novel coronavirus, arguably most Americans are ready to reclaim their everyday lives. Additionally, the start of the fall semester means that parents have little choice. And it’s this narrative that many speculators are keying in one regarding equities like Halliburton (NYSE:HAL) stock.

If There's a Post-Earnings Dip, Halliburton Stock Is a Buy
Source: hkhtt hj / Shutterstock.com

Yes, the fossil fuel market is an ugly one but the devastation can’t go on indefinitely; hence, the attractiveness of HAL stock, especially at these prices.

Fundamentally and politically, these contrarians aren’t wrong in feeling confident about going against the grain. First, The New York Times reports that well over two-thirds of states have either reopened their economies or are in the process of reopening.

That leaves relatively few states that are pausing or reversing their reopening initiatives. Theoretically, this spells more demand for oil, which should lift HAL stock.

And in some ways, the push to get businesses – especially small businesses – on their feet is a bipartisan sentiment. During the presidential debate, former Vice President Joe Biden accused President Donald Trump of failing to respond to the crisis early enough, resulting in a nationwide lockdown. In other words, Democrats will have a tough electoral road both now and in the future if they become the party of small business killers.

Nevertheless, I wouldn’t jump on HAL stock, even if outside fundamentals look encouraging. In reality, the recent volatility in Halliburton demonstrates that this bullish thesis is flawed. For one thing, we have a still raging pandemic, which I’ll get into below. Second, the recovery story isn’t as compelling as you might think.

Sure, only seven states are reversing their reopening. However, these states – California, Texas, Arizona, Colorado, Iowa, Illinois and Michigan – make up more than $7.5 trillion in GDP. That means the 14% of the country that’s reversing represents nearly 35% of U.S. GDP.

Plus, powerhouse states like California do a lot of driving. This translates to outsized demand for oil, which is simply not being consumed right now. Therefore, you should hold off on HAL stock until the picture clears up.

HAL Stock Still Faces Threats from Covid-19

Nevertheless, the fact that some states are not onboard the reopening of society isn’t enough of a deterrent to HAL stock for many speculators. That may be because of encouraging developments regarding Covid-19. According to data from the Centers from Disease Control and Prevention, new daily coronavirus cases have stabilized around 50,000 or below recently.

Though still high, this is a sharp drop from the 75,000 daily cases seen during this past summer’s peak. Further, with common American fixtures like football starting their season without major calamities – unless of course you’re a New England Patriots fan – it’s easy to believe the pandemic is generally under control.

But if that were the case, somebody forgot to tell Wall Street. Near the beginning of September, HAL stock has been sliding down a decidedly bearish trend channel. Curiously, this has been occurring in the backdrop of rising Covid-19 cases since Sept. 8. It appears that not everybody shares the reopening enthusiasm.

HAL stock vs. oil prices and Covid-19 cases
Click to Enlarge
Source: Chart by Josh Enomoto

Just as worryingly, HAL stock has been an accurate early-warning indicator for crude oil prices. For instance, the negativity in HAL’s pricing has been more severe in the early goings of this crisis. Later, in the back half of March, Halliburton shares started rising, which predated crude oil’s recovery.

Now, we may be back full circle again. As I stated, HAL stock turned volatile early last month and continued to decline. On the other hand, crude oil prices started to pick up until very recently.

In my opinion, investors will do best to avoid what could be a train wreck. Here’s the deal: even with most states having reopened, the number of people staying at home has increased almost 40% from the year-ago period. This is going to be a long recovery.

Trump’s Illness Could Play a Role

Personally, one of the most frustrating dynamics has been the mainstream adoption of conspiracy theories. Maybe it’s just my immigrant nature coming out but I just don’t understand Americans sometimes.

For instance, most people here would get angry at the notion that NASA faked the moon landing. Why? Because the U.S. government would never lie about something like this. But then, at least some of these very people will insist that the coronavirus is a hoax. Because the government would lie about something like this, I guess.

Some folks will apparently believe any conspiracy theory – even if they’re not prone to such outlandish beliefs – if it fits their ideology. But when Trump got infected with the coronavirus, it’s hard to say that the pandemic is still an Illuminati con job or whatever.

Therefore, many of the ardent virus truthers may be willing to change their tune. Perhaps not vocally but they might mask up when the cameras are turned off. And that could mean greater support for mitigation measures – including more lockdowns – which wouldn’t help the case for HAL stock.

But even if the above didn’t materialize, the fact is, from government statistics to private-company data, the consensus is clear: oil demand is still grossly deflated. Until we see a credible catalyst for a reversal, I’d stay away from Halliburton.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.


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