One HAL of a Trading Opportunity?

By Lance Gaitan  |  August 7, 2018

At first blush, there’s a bit of a disconnect in one corner of the energy market.

Shares of Halliburton (NYSE: HAL), the world’s second-largest oil-field service provider, trade at an undemanding valuation despite West Texas Intermediate (WTI) hovering in the high $60s to low $70s per barrel.

At this point in the cycle, steady oil prices usually translate into accelerating activity levels for the oil-field services industry.

However, the recovery in this industry – which provides a wide-ranging suite of products and services to companies that produce oil and gas – remains a dream deferred.

For HAL and the other diversified service companies, the ability push through price increases in key product lines has remained limited.

But hope springs eternal.

In recent years, HAL has been a great trading vehicle for investors who buy the rips when sentiment improves and sell the dips when reality intercedes.

A Tale of Two Oil Prices

HAL sold off hard (as much as 8.2%) after the company warned that its results in the second half of the year could disappoint.

You see, there’s more than one oil price in the world. WTI may go for about $70 per barrel at the official hub in Cushing, Oklahoma, but the same crude oil fetches a $17 discount in Midland, Texas.

This widening price differential reflects surging production in the Permian Basin – a prolific play in West Texas that accounts for about 55% of the U.S. oil-directed rig count – and insufficient pipeline capacity to move these volumes to market.

Several pipelines will come onstream next year to help resolve this problem. But until then, there just aren’t enough straws.

With local oil prices hovering in the low $50s per barrel, operators have slowed their completions activity in the Permian Basin, building a backlog of drilled wells that still need to be fractured.

These delays have weighed on demand for pressure pumping, the horsepower that impels fracturing fluid into the reservoir rock. This brute force creates the cracks through which oil and gas can flow into the well.

Happy Returns?

Although HAL’s disappointing guidance hit the stock hard, sentiment toward the oil-field services giant eventually will recover.

After all, the growing backlog of drilled wells awaiting completion provides visibility to future activity levels.

As the go-to stock for portfolio managers seeking exposure to oil-field services, Halliburton’s share price can move quickly when the animal spirits start running in on direction (or another).

That’s exactly the type of opportunity my Energy Profits Accelerator service targets. My proprietary algorithm takes emotion out of the process and thrives on volatility.

HAL recently popped up on my High Alert watch list after meeting several of my system’s trading criteria. As always, subscribers will receive a trade alert as soon as my algorithm identifies a compelling opportunity.

Lance Gaitan

Lance Gaitan graduated from Franklin University in Columbus, OH with a degree in Finance. After graduating, Lance worked as an auditor for an insurance administrator and later attained his securities license and then went to work as a broker for a small firm.MORE FROM AUTHOR