Political intrigue pumps up energy stocks
11/08/17

The energy sector has taken it on the chin for much of the year, with oil-related stocks floundering into the third quarter before tracking to the upside with slowly rising crude oil prices.

But then there were the Saudi royal arrests.

Over the past several days, oil (and oil stocks) got a little extra turbo-charging in the form of political turmoil in Saudi Arabia—a series of arrests and corruption charges against various members of the royal family and other high-profile billionaires. Whether you call it a power-consolidation purge or the initiation of much-needed reforms—and political experts seem split on whether it is one, the other, or both1—you can be sure that any perceived instability in the Desert Kingdom will make itself felt in the energy sector.

Case in point: Oil exploration and production company Hess Corp. (HES), which on Monday popped more than 6% to $48.23, breaking out above its late-September high to its highest level since May, before edging to a slightly higher high (but lower close) yesterday. This upsurge came just a little more than a week after Hess got slammed on October 25-26 in the aftermath of its Q3 earnings release (the firm reported a loss, although it was smaller than expected2).

Hess (HES) 5/8/17–11/06/17

Source: OptionsHouse

Options traders also jumped in, with volume nearly 20 times the 20-day average, and a good portion of the trading occurring in the November $45 calls and December $50 calls—pretty close to $2.5 above and below where HES was trading halfway through yesterday’s trading session.

A  weekly chart shows the stock is still well below its early 2017 high, but it also formed a higher low in October after bottoming in August. The stock’s next obvious resistance level is the top of the March-May trading range, just a little above $52.

Hess (HES) - 8/29/16 - 11/6/17

Source: OptionsHouse

Over the past 25 years, though, HES gained 6% or more in a day 53 other times, and its performance in the first week after these days was a mixed bag—the typical move was sideways to slightly lower.

In the end, though, oil stocks can have a tough time bucking the crude oil trend, especially when black gold is being buffeted by geopolitical disturbances. If the Saudi situation keeps the bullish pressure on crude, sector stocks could follow suit.

 

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1Washington Post. Saudi Arabia’s crown prince makes a power play at home and abroad. 11/6/17.

2 Reuters.com. BRIEF-Hess reports Q3 adj loss per share of $1.07. 10/25/17.