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Martin Tillier

Martin Tillier

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A Contrarian Strategy For Those With Healthy Risk Appetite

Next week is a huge one for energy investors in terms of earnings. Four of the largest multinational integrated oil firms will reveal earnings for the third calendar quarter, beginning with BP (BP) on Tuesday. Conoco Phillips (COP) will then report on Thursday, closely followed by Exxon Mobil (XOM) and Chevron (CVX), both on Friday. It is no great revelation to say that the news is likely to be bad in a comparative sense. Oil closed the last quarter at $45.35, as compared to the third quarter last year when it was at $103.70 on September 30th, or the close of the second quarter, which was $59.10.

Given that, relating the last quarter’s performance to historical numbers for any of the big four will be a pointless exercise. What matters to most people is how the companies perform relative to analysts’ consensus estimates, and they will be looking for results that are “not as bad as it could have been” or for positive, or at least less negative, guidance from the big four.

For those invested for the long term, of course, one quarter’s earnings are not the point. They are counting on a recovery in oil prices and thus in profitability for these companies, over time. Those of us with a shorter term trader’s view, however, see the volatility that usually accompanies earnings as an opportunity. In order to take advantage of that opportunity, my advice would usually be to do what I was trained to do in the dealing room; square up before…

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