BP remains weak as Iraq, Libya adds to oil glut

The shares of oil and gas company British Petroleum, also referred to as BP Plc (NYSE: BP), have risen by about a dollar following the OPEC’s decision to limit their overall output to between 32.5 million and 33 million barrels a day.

While the oil market cheered the news by pushing up the price of crude to about $48 per barrel, we believe that it has only presented a chance to go short on the stock of oil companies, including that of BP, due to the reasons discussed underneath.

The share price of BP ended Tuesday’s trading session at $36.

The London-based company reported a narrowed fiscal 2016 second quarter net loss of $1.39 billion or $7.60 per share ($0.46 per ADS) on revenue of $47.28 billion. In fiscal 2015, BP recorded a net loss of $5.78 billion or $31.83 per share ($1.91 per Ads) on revenue of $63.21 billion.

On a non-GAAP basis, the Q2 2016 net profit of $720 million or $0.23 per share was below the analysts’ estimates of $0.26 per share. During the Q2 2015, BP posted non-GAAP net profit of $1.31 billion or $0.43 per share.

For the third-quarter, BP anticipates the production to be lower than the previous quarter on account of maintenance activity and the negative impact of an outage at the Enterprise Pascagoula gas processing plant (Gulf of Mexico). The company does not anticipate any improvement in the downstream operations, compared to the second-quarter. Furthermore, BP expects the refining margins to be under considerable pressure in the current quarter.

WKRG

In an informal meeting conducted last week in Algiers, the OPEC decided to limit the output to a range of 32.5 million to 33 million barrels per day. The announcement resulted in a spike in the price of crude, but did not last long. The reason is that the decision on which producer has to decrease the pumping of oil and by how much will be decided only in the November 30 meeting to be held in Vienna. In fact, the supply has recently increased due to the shipments from Iraq and Libya. Thus, we can argue that the announcements will not benefit BP in this quarter. Considering the oversupply of about 1.8 million barrels per day in the global oil market, BP will fundamentally face a tough time in the current quarter.

A look at the BP’s historic price chart reveals that the stock has a firm support at 33 levels. The immediate resistance for the stock lies at 36. The stochastic oscillator, which is near the overbought region, indicates the prospects of a sell off.

Thus, a binary trader should place his bet on a decline in the stock through the purchase of a one touch put option. Apart from looking for a target price of $33 or higher, the trader should also look for an expiry date in the first week of November.

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