Oil (OIH) markets are as volatile as ever. In past weeks, oil prices closed above $50/bbl, giving some comfort to energy investors with hope that prices would hold. On May 25, prices reversed and are barely holding the critical $50/bbl level.
OPECs agreement to extend the output cut by nine months is likely priced in the markets already. “Sell on fact” followed, leading to a broad selloff. Exxon (XOM), an energy play that investors should hold, is stuck in a trading range between $80 - $82 / share. The inexpensive income stock, BP plc. (BP), pulled back from the $37 level. Even after falling, the stock yields a dividend of 6.5 percent.
Technical may also explain the selling in oil stocks. Once the profit-taking ends, fundamentals support higher oil prices. Strong demand will lead to a heavy draw in inventory throughout this summer.
BP’s prospects are good. The company set a goal of outputting 4 million bbl per day by 2020. This year, seven major projects come online. Nine more will add to output in 2018. The higher supply may hurt oil prices but it also squeeze out smaller players. This leaves big companies like XOM and BP with a competitive advantage.
