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Martin Tillier

Martin Tillier

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Why This Earnings Season Could Be Difficult For Traders

Next week will be one of the busiest for Q2 earnings releases from S&P 500 companies in general, but it is also loaded with reports from the energy sector. Exxon Mobil (XOM), Conoco Phillips (COP), Anadarko (APC), BP (BP), and Total (TOT), to name a few, will be reporting on their performance for the second calendar quarter. Energy investors have become accustomed to wincing their way through earnings season, as one company after another announces a miss and, even more impactful on their stock, downgrades forward guidance. This time, however, could be different.

(Click to enlarge)

The reason is fairly obvious if you take just a glance at the chart above. Oil prices hit their bottom at the end of February this year at $26.05, and for almost all of the first quarter WTI was trading below $40. The second quarter of this year, however, is virtually a mirror image of the first. WTI only once, at the start of the period, fell below $40 for a few days and peaked in June at $51.67. It doesn’t take a genius to know that higher oil in the second quarter should equate to higher profits in the sector.

Of course, because that is not a hard thing to work out it would be reasonable to assume that the improved performance for the quarter is already priced in, and the chart for the large integrated firms such as XOM would seem to confirm that. XOM is up around 15% since the end of Q1. There are however, grounds to believe that even that, the best large cap…

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