Oilfield Services Surge as Venezuela Opportunities Loom: 3 Ways to Trade It
Oil services stocks are hot as heck Monday. Here's the setup and how to get involved.
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Needless to say, that I have been trading energy stocks all Monday morning. Due to current events, I would think that understood given the fact that the whole sector is on the move. Sure, WTI and Brent Crude have been moving around. A little. The stocks? They're hot.
While among global oil giants, only Chevron (CVX) has a presence in Venezuela, President Trump announced that U.S. oil companies would be moving into Venezuela. We know that Venezuela has the world's largest known oil reserves. There will definitely be exploration.
However, despite a wealth of resources, Venezuela's ability to produce what should be the economic lifeblood of that nation, withered. President Trump called Venezuelan oil industry infrastructure "badly broken" and "decayed." The president has implied that these U.S. oil companies would have to repair or replace the dilapidated equipment themselves but would ultimately be reimbursed as production resumes and then increases.
The Situation
Oil is not oil. There is plenty of variety in what is pulled out of the ground.
WTI Crude, or the "light, sweet stuff," which is what we mostly produce in the U.S., is more suitable for export than it is for use inside the USA. That's why we still import most of our oil despite being such a large exporter.
Venezuelan oil is heavier, meaning that it is a better fit for U.S. refineries than is our own oil. Does the combination of rotted out infrastructure mean good things for oil services companies? I think it does.
When I learned that I would be covering oil services companies this morning, I had to stop trading until later. I currently hold long positions in Halliburton (HAL) , SLB (SLB) and Baker Hughes (BKR) .
Does the type of oil that will hopefully be pulled out of Venezuelan territory mean good things for the refiners? Again, I think so. I was trading Valero (VLO) as well, but was flat that name when I had to halt trading in the space for a little while.
The Oil Services Setup
First off, though SLB, which is the old Schlumberger, was originally a French company, the still very internationally exposed firm runs principal offices globally, and is headquartered in Houston, Texas. Halliburton and Baker Hughes are both historically American companies that are also headquartered in Houston.
Being considered an American company could be very important as contracts for the servicing and repair of Venezuelan wells and reservoir performance management come up.
Halliburton
Readers will see that HAL has trended higher going back to early April and that this trend for the most part fits neatly inside of an Andrews' Pitchfork model. Note that both the stock's Relative Strength and daily moving average convergence divergence (MACD) are postured bullishly as the 21-day exponential moving average (EMA) and 50-day simple moving average (SMA) have provided support.
I see the current pivot as the upper trendline of the Pitchfork model. This line has resisted the stock's advance twice before. Monday morning, the stock opened on a gap above that line. Holding the level could provide a price target as high as $37.
SLB
Here, with SLB, I think we have a very large double bottom pattern of bullish reversal with a $38 pivot followed by a very small double bottom with a $41 pivot. I am not sure about recognizing the smaller pattern. Hence, in the name of being conservative, I will go with the lesser pivot.
Here too, we suddenly see a very bullish RSI coupled with a strong daily MACD. I am probably going to go with a $48 price target here.
Baker Hughes
BKR is trickier. Yes, relative strength and the daily MACD are strong. The stock also took out its 50-day SMA, which is bullish.
That said, the stock had developed a triple top pattern of bearish reversal and that pattern is still basically in effect until the December top of $51.12 is retaken. Hence, that's my target, but I am also going to have a much quicker trigger finger with this one. The 200-day SMA to the downside is still in play if that recent top is not retaken.
At the time of publication, Guilfoyle was long HAL, SLB, BKR equity.
