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Home / Special Reports / How to trade Oil & Gas stocks

This report is not a personal recommendation and does not take into account your personal circumstances or appetite for risk.

15 March 2017

How to trade Oil & Gas stocks

Tug of war in Crude Oil continues

If there’s one thing you can say about Crude Oil, it’s that the world’s number one commodity is always exciting.

The tail end of 2016 provided one of the most fascinating sequences of events for the global economy as OPEC, the group that controls the largest amount of crude oil output in the world, reached a historic production cut agreement. Not only did members manage to hammer out a deal despite some opposition from key states Iraq and Iran, but the cartel also managed to persuade non-members such as Russia to apply their own cuts in the hope of significantly redressing the global oversupply. Furthermore, the group has seen record compliance levels from the members involved, with over 90% of the proposed cuts being implemented. Bravo!

Yet in the early part of 2017, an uptick in US production has thrown yet another intriguing factor into the mix, creating something of a tug of war for Crude Oil prices. Subsequently, we have seen a tight trading range above $50 but below $60 per barrel for several months as investors determine which side is having the greater impact.

In March, it appears US producers may have the slight edge. Rising US government stockpiles since the November OPEC production cut deal have not been well received and threaten to drag prices back below $50 per barrel. To counter this, could we see OPEC looking to extend its agreement, not just internally but externally too? After the surprising turn of events at the end of 2016, it seems nothing is out of the question for 2017!

Energy companies in the UK took the OPEC agreement in their stride coming into 2017, with many major Oilers such as BP and Shell posting fresh multi-year highs in January. However, as the squeeze put on prices by US production increases, household energy names have since pared some of their OPEC-inspired gains. With the marketplace hanging in the balance, there couldn’t be a better time to learn to trade these exciting UK stocks.

In exciting times, you should have reliable service

Despite the changes in the market place, our message remains the same – wherever we go from here, there are always attractive opportunities to trade, now more than ever! Of course, you’ll want a trusted broker to help you along the way, fully regulated by the FCA, while a multi-year award-winning service would be nice too…

That’s where we come in. As a leading execution-only CFD broker in the UK, Accendo Markets is here to help you trade the markets, not just with an unrivalled service, but also supplying you with tailor made research from our in-house team so that you can make informed and timely trading decisions.

This report will provide you a guide of how to trade some of the UK’s most popular Oil & Gas stocks, as well as providing some of our research team’s own technical analysis on four major players in the sector. Fancy expanding your trading horizons with an award-winning brokerage? Read on to find out how, today!

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Trade example: Amec Foster Wheeler (AMEC)

AMEC Foster Wheeler PLC (-)

In the past 12 months, shares in Amec Foster Wheeler have traded as high as 620p and as low as 360p. 20,000 Amec Foster Wheeler shares can be bought for around £100,000. If the share price were to make it back to its October high of 630p, that implies 26% potential upside should a trader go long the stock using conventional purchase.

If the price fell back to Brexit lows of around 360p, however, a long position would be out of the money to the tune of 28%. Traditional shares only permit long positions, but with CFDs you can speculate just as easily on falling prices. Therefore, if you thought that Petrofac might be about to face some unpleasant business conditions, you could go short with a CFD. In that case, if the share price fell back to its November lows you could make a 28% profit before costs.

The percentage gains and/or losses on the chart above are based on full exposure to Amec Foster Wheeler shares. To trade Amec using a CFD requires a minimum deposit of 10%; 20,000 of the company’s shares can currently be secured with Accendo Markets for just £10,000 – with the same exposure as traditional shares, the same potential profit or loss – however it ties up a fraction of the capital required for normal shares. You can offset the leverage aspect by simply having £100,000 in your trading account. It’s a simple piece of engineering that would in this case save you £500 in stamp duty.

Leverage can also be useful, right? That said, it is of course extremely useful to consider the potential worst case scenario and allocate extra funds as you deem necessary to cover that possibility, but, as you can already see, by working with Accendo Markets your profit potential and trading flexibility are greatly increased with the added bonus of lower dealing costs.

With all this in mind, we’ve compiled some of our most popular Oil & Gas stocks below, summarising their year-to-date trading ranges, technical analysis and given an overview of broker targets on those stocks. Some are smaller sized stocks whose shares may not be the most liquid, but are prone to large price swings, while others are heavily traded, household name blue chip oil majors whose prices often change by a few percent intraday.

Please note that the following trade ideas are designed to give you an indication of the potential behaviour of Oil & Gas stocks given the market conditions present at the time. The pricing data is correct as at the time of writing.

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BP (BP.)

BP PLC (-)

Will shares in BP (BP.) return to 2-and-a-half year highs of 520p or pull back towards 2016 lows of 310p?
  • Returned to 2014 highs after the announcement of OPEC’s production cut agreement
  • Stochastic oscillator overbought
  • MACD and Momentum positive
  • Directional Indicators showing no bias as price close to 12-month rising support

 

Broker Consensus: 41% Buy, 59% Hold, 0% Sell

Bullish: Barclays, Overweight, Target 625p, +35% (1 Mar)

Average Target: 515p, +11% (9 Mar)

Bearish: Natixis, Neutral, Target 400p, -14% (8 Feb)

 

N.B. All pricing and consensus data was sourced from Bloomberg on 9 March. Please contact us for a full, up to date rundown.

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Premier Oil (PMO)

Premier Oil PLC (-)

Will shares in Premier Oil (PMO) return to 2016 highs of 100p or pull back towards 2016 lows of 20p?
  • Currently at 60p support. Could we see a bounce or breakdown?
  • Stochastics and Relative Strength Index oversold
  • Momentum and MACD negative, although the former is improving
  • Directional Indicators diverging bearishly

 

Broker Consensus: 31% Buy, 50% Hold, 19% Sell

Bullish: Bernstein, Outperform, Target 150p, +151%, (7 March)

Average Target: 85p, +42% (9 Mar)

Bearish: Stifel, Underperform, Target 35p, -41% (9 March)

 

N.B. All pricing and consensus data was sourced from Bloomberg on 9 March. Please contact us for a full, up to date rundown.

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Royal Dutch Shell (RDSb)

Royal Dutch Shell PLC - B (LSE) (-)

Will shares in Shell (RDSb) recover to 2 and a half year highs of 2400p or return to 2016 lows of 1300p?
  • Currently testing 12-month rising lows support having posted fresh multi-year highs in November
  • Relative Strength Index stuck in lower half of range = bearish
  • Momentum and MACD turned positive
  • Directional Indicators converging bullishly

 

Broker Consensus: 59% Buy, 27% Hold, 14% Sell

Bullish: Barclays, Overweight, Target 2800p, +29%, (3 Feb)

Average Target: 2466p, +14% (9 Mar)

Bearish: Natixis, Neutral, Target 2020p, -6.9% (3 Feb)

 

N.B. All pricing and consensus data was sourced from Bloomberg on 9 March. Please contact us for a full, up to date rundown.

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Tullow Oil (TLW)

Tullow Oil PLC (-)

Will shares in Tullow Oil (TLW) bounce from support to 350p highs or pull back towards lows of 120p?
  • Having rallied to 12-month highs, Crude Oil price sell off in March sees rising support tested
  • RSI and Stochastics oversold
  • Momentum and MACD negative, although the former is improving
  • Directional Indicators diverging bearishly

 

Broker Consensus: 44% Buy, 36% Hold, 20% Sell

Bullish: Bernstein, Outperform, Target 400p, +60%, (7 Mar)

Average Target: 308p, +23% (9 Mar)

Bearish: Investec, Sell, Target 135p, -46% (9 Feb)

 

N.B. All pricing and consensus data was sourced from Bloomberg on 9 March. Please contact us for a full, up to date rundown.

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Want to take advantage of the above opportunities right now?

Whether you see UK stocks going up or down for the remainder of the year, tradable opportunities will present themselves regularly. We’re here to help you weed them out and capitalise on them. Accendo Markets can help you increase your profit potential with the use of leveraged instruments such as CFDs, a flexible alternative to traditional shares that is currently exempt from UK stamp duty.

CFDs: Like shares, but more flexible

Stockbroking Ticket

CFD Ticket

The example above shows how buying 1,450 shares in British Land @ £6.90 requires an outlay of around £10,000 plus commission (see left-hand box), while the same exposure via a CFD requires about £500 plus commission (see right-hand box). If a trader invests in British Land, one would assume they believe the share price is likely to move in their favour. After considering the ‘worst case scenario’ and assigning funds to cover it, the trader may conclude there’s little point in exposing the full £10,000 to the BLND shares - some of that capital could be put to good use elsewhere in the markets. (Source: IG, Prices indicative)

CFDs are leveraged instruments, but you don’t have to use the leverage

If you had, say, £10,000 to invest in the stock market, you could deposit that amount into a share dealing account and purchase shares in a company. You would pay commission to open the position, 0.5% in stamp duty and the full £10,000 will be tied up in your chosen shares with any profit or loss based on that exposure. The same £10,000 worth of exposure can be secured with a CFD for a fraction of the initial outlay thanks to leverage, with the risk and reward the same as if £10,000 worth of traditional shares were held. But should you not be interested in leverage, you can always treat CFDs like shares. Simply deposit £10,000 into a CFD trading account and take the equivalent CFD position which will tie up just £500 (note that overnight financing costs will still apply). The remaining £9,500 is not tied up, so you can use some of that to take advantage of another short-term opportunity elsewhere, or simply leave it on the account to support any losses. Best of all, using a CFD means you pay no stamp duty!

What’s your view?

Think shares will rise? Take a long position by buying CFDs (buy low, aiming to sell high). Think they’ll fall? Take a short position by selling CFDs (sell high, aiming to buy low). For a more detailed rundown of CFDs, their mechanics, associated costs and some trading scenarios download our ‘Comprehensive Guide to CFDs’ here.

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The Accendo Markets Research Offering

Does your current broker’s morning report tell you all you need to know about yesterday’s news? If so, how is it offering you anything more than the plethora of information already available on the internet?

We’re proud that our morning editorial has become a hot commodity in the City, its content quoted daily by the journalists that are writing the news everyone else will be reading later in the day, if not the next. Our morning report tells you what’s driving the market at that moment and what to look out for in the day ahead.

If a company has reported earnings before the market opens, we’ll tell you why the shares are called to open up or down in relation to that announcement.

As well as the Morning Report, signing-up to Accendo Markets Research & Trade Ideas offers you the chance to receive the following publications:

  • Another Level: A selection of key level alerts on various stocks.
  • Index Focus: A selection of key level alerts on the major indices.
  • Trade Alerts: Trading ideas from our analysts. What do they think is likely to move?
  • Macro Calendar: Live market-moving data, breaking news as it happens
  • Week in Advance: A summary of next week’s key events. Is there a trading opportunity there for you?

To ensure you can act as quickly as possible, you’ll receive an email with a link to the latest publication as soon as it’s released. You can unsubscribe from these emails at any time.

Based on a wealth of experience, gained from both large and small institutions, our Research and Trade Ideas are produced in-house. Our team of dedicated professionals comprises both analysts and traders, drawing upon a wide range of resources and methodologies.

Our aim is to provide you with the manpower and expertise you need to help you clarify, interpret and capitalise on the ever-growing volume of market information.

The journalists don’t pay for it and neither do you, so why not give it a go? You’ve nothing to lose and perhaps a little more to gain… Subscribe Today!

Page: 08

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This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.

Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance. Prepared by Michael van Dulken, Head of Research

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
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