The stocks and options of oil companies (especially those in the production and exploration segments) are taking a serious drubbing today as the market dynamics of demand and supply changed over the weekend. The change in the market dynamics comes at the heel of reports that Iraqi oil facilities in the southern part of the country are mostly insulated from the insurgency ravaging the country. In addition, Libya’s return to the oil exporting business will cause the supply to catch up with the demand for oil and restore a balance in the market.
Libya makes an unexpected comeback into the global oil exporting business as rebels agree to lift force majeure and to open up two Libyan ports for oil exports. The port at Es Sider is Libya’s biggest oil-exporting terminal and the one at Ras Lanuf is the third-largest oil-exporting terminal. News has it that both ports have about 7.5 million barrels of crude in storage and that they can load up to 560,000 barrels of oil per day.
Oil is Still a Value Play
Despite the decline in the share prices of oil stocks, some energy stocks still have impressive upside potential with which they can reward options traders. ConocoPhillips (NYSE:COP) is one of such energy stocks that are best poised to deliver upside value going forward and the decline in its share price provides a great opportunity to enter its options at a discount.
A Brief Overview
ConocoPhillips with its market capitalization of $105.73B is an independent exploration and production (E&P) company, based on proved reserves and production of liquids and natural gas. The Company explores for, produces, transports and markets crude oil, bitumen, natural gas, liquefied natural gas (LNG) and natural gas liquids on a worldwide basis. The stock is up 27.19% in the last six months and shares of ConocoPhillips are trading around $86 apiece today.
Reasons to Buy
One of the main reasons I am optimistic about ConocoPhillips’ upside potential is that the stock has a Number 1 “Strong Buy” Zacks rank. The Zacks number 1 rank should never be the only reason for a bullish position on a stock; nonetheless, a “Strong Buy” is an objective third-party opinion that we are not barking up the wrong tree.
Another reason to stay bullish on ConocoPhillips is the company’s strategic positioning in new pipeline projects in the Gulf of Mexico (GOM), Malaysia, liquefied natural gas project in Australia, the U.K, Norway and the Canadian oil sands. It is no longer news that ConocoPhillips is strategically positioned for increased production in the US Lower 48 liquids-rich plays as the output at the in the Christina Lake Phase E commences this month.
The third reason to be optimistic about ConocoPhillips is the company’s steadfastness in its divestment program. The company has already completed the divesture of assets valued at about $12.4B after raising some $10.2B from its divesture program in 2013. The divestment of its Nigerian Upstream Oil and Gas business is expected to be completed by the end of this month and it is expected that the sale will generate about $1.65B in cash for ConocoPhillips.
How to Trade COP Options
ConocoPhillips is set to release Q2 2014 earnings this month on July 28. I strongly believe that the divestures and increased output from its new pipeline projects will serve as a boost to lift the stock beyond what the ordinary market dynamics of demand and supply dictates to most oil companies. I recommend the COP Jan 2015 90.000 call (COP150117C00090000).
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