• 4 minutes Is $60/Bbl WTI still considered a break even for Shale Oil
  • 7 minutes Oil Price Editorial: Beware Of Saudi Oil Tanker Sabotage Stories
  • 11 minutes Mueller Report Brings Into Focus Obama's Attempted Coup Against Trump
  • 15 minutes Wonders of Shale- Gas,bringing investments and jobs to the US
  • 9 hours IMO 2020 could create fierce competition for scarce water resources
  • 4 hours Evil Awakens: Fascist Symbols And Rhetoric On Rise In Italian EU Vote
  • 21 hours India After Elections: Economy And Hindu Are The First Modi’s Challenges
  • 7 mins Theresa May to Step Down
  • 19 hours IMO2020 To scrub or not to scrub
  • 8 hours Apartheid Is Still There: Post-apartheid South Africa Is World’s Most Unequal Country
  • 8 hours Total nonsense in climate debate
  • 18 hours Devastating Sanctions: Iran and Venezuela hurting
  • 10 hours IRAN makes threats, rattles sabre . . . . U.S. makes threats, rattles sabre . . . . IRAQ steps up and plays the mediator. THIS ALLOWS BOTH SIDES TO "SAVE FACE". Then serious negotiations start.
  • 22 hours Old - New Kim: Nuclear Negotiations With U. S. Will Never Resume Unless Washington Changes Its Position
  • 228 days Epic Fail as Solar Crashes and Wind Refuses to Blow
  • 20 hours Compensation For A Trade War: Argentina’s Financial Crisis Creates An Opportunity For China
  • 16 hours Level-Headed Analysis of the Future of U.S. Shale Oil Industry

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 performer in the sector over the last few months, could have further to go on the earnings release.

First, the initial reaction to earnings is always about how things stack up to expectations, or, to put it another way, how accurate Wall Street’s guesses were. Considering that they are peering into the future, the analysts on average do a pretty good job with their guessing, but if they err, it is clearly on one side. For the S&P 500, around 67% of firms beat their estimates and have done so in every quarter for the last seven years. In fact, if you take the quarters in the recession out of the equation, that goes back decades.

So, if the natural, and to some extent expected, behavior is to underestimate earnings, imagine how strong that urge is in a sector that has pretty consistently kicked you in the teeth over the last four quarters. I know a few analysts quite well and I asked one of my friends, none of whom cover energy, what her attitude would be this quarter…




Oilprice - The No. 1 Source for Oil & Energy News