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ConocoPhillips: Pressured by falling oil prices

Written by Larince Zhang

The Fed announced its largest rate hike since 1994 at its most recent meeting, raising rates by 75 basis points to  1.5%-1.75% . Policymakers expect rates to hit  3.4% this year (up from the 1.9% forecast three months ago). The near-term growth outlook has been revised down to 1.7% (from 2.8%) in 2021, 1.7% (from 2.2%)in 2023 and 1.9% (from 2.0%) in 2024

Figure 1: S&P 500 and Energy Sector: 1-Year Performance . Source: Barchart.com

Fears of a bleak economic outlook after the Federal Reserve took an aggressive monetary stance to fight inflation have negatively impacted stocks. By Friday’s close, the S&P 500 had fallen to 3,682, down more than  -30% from its January high . Recession fears and weak sentiment hit the energy and mining sector the hardest last week, with an average decline of -20% . Overall, the energy sector has still outperformed the S&P 500 since mid-January.

Figure 2: Reported sales and EPS versus analyst forecasts for ConocoPhillips . Source: money.cnn

“ConocoPhillips is a leading oil producer with a strong presence in 48 key regions, including prolific shale plays… The company’s production profile looks bright as it has in these resources decades of low-cost prime drilling locations.” – Zacks Equity Research

ConocoPhillips fundamentals are doing well. In the past few years, its sales have been in line with consensus expectations, or even higher than market expectations. In its latest earnings report , the company’s sales reached $19.3 billion, up 20.63% from the previous quarter, while adjusted earnings per share (EPS) were $3.27 , up $1 from the previous quarter. This encouraging result is due to increased oil production, the realization of commodity prices, higher oil prices driven by travel demand and tax benefits associated with the closure of audits. Also, the company’s generally healthy balance sheet could benefit investors in the long run. Most recently, ConocoPhillips announced it had increased its expected return on capital to shareholders to a total of $10 billion and declared a variable return on quarterly dividends and cash distributions, metrics that indicate the company’s financial health.

The recent slump in oil prices after a stronger Dollar and Russia hinting at higher oil exports could weigh on the company. WTI recently recorded its biggest one-day drop since March to $106. On Tuesday, it hit a high of $123.62, just shy of an early March high of $124.91. $105 will be the next psychological support level to watch, followed by $93.

Technical Analysis:

The daily chart shows #ConocoPhillips closing well below the 100-day SMA and analysts’ low estimate ($115). It is currently testing support at $93.50 . A break below these levels could indicate that the company’s stock has the potential to extend the decline to the next support levels at  $84.63-$86.33$78.50 and $72.44 . Otherwise, $99.70 and the 100-day SMA will be the nearest resistance to watch, followed by $105.20, $112.40, and $124.10.

About the author

Larince Zhang

长达八年的实盘操作与市场分析经验。涉足的金融产品包含外汇、大宗商品、股指、商品期货、指数期货以及股票。大学主修金融学,秉持着学以致用的心态务必把课堂上所学的知识与临场实践经验相结合。 经过多年交易经验的积累与总结,坚信“大道至简”四字箴言。价格的变动即是幕后人为交易买卖所驱使。坚信市场考验的不是技术,而是人心。唯有正确的交易认知、缜密的策略布局与严谨的资金管理,方才是成熟交易的真谛。

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