Tesco Corp Resumes Downtrend on Low Crude Prices

Tesco Corp Resumes Downtrend on Low Crude Prices
March 31, 2016

 
Shares of Tesco Corporation (NASDAQ:TESO), a technology based solution provider for the upstream energy industry, had risen by more than 60% from a 52-week low of $5.13, in just the past two months. The share price currently hovers between $8 and $9. While some analysts are optimistic about the further uptrend in the share price, there are some compelling reasons to believe that the uptrend was simply a relief rally and nothing more.

Fundamentally, the company provides engineering solutions for servicing, drilling and completion of wells. Tesco has engineering facilities in Europe, USA, Russia, Latin America, Asia Pacific and the middle-east. The profitability of the company is directly affected by the increase or decrease in the drilling and production activities of oil and natural gas companies. In other words, the rig (exploration) and well count (production) determines the revenue of the company. Indirectly, the revenue and earnings are dependent on the price of crude oil and the natural gas.

Crude oil, which is currently trading at about $40 per barrel, has recovered more than 40% in the past two months. The price faces stiff resistance near the 40 levels. Most analysts believe that the price would go below the level of $30 per barrel in the next few weeks. Thus, the near-term prospect of an increase in revenue for Tesco is very less.

Between 2014 and 2015, the rig count has decreased 48% to 977 in the USA. Similarly, in the fiscal 2015, the rig count in Canada has declined to 193, from 380 in the prior year corresponding period. The number of rigs in Africa and Europe has decreased by 28%. Globally, in the fiscal 2015, the average decrease in the rig count was 35%. With crude oil oscillating between $30 and $40 per barrel, there is negligible chance for an increase in the rig count in the nearby future.

In the fiscal 2015, the well count in the US decreased to 28,692, from 47,402 in the fiscal 2014. Likewise, in the fiscal 2015, the number of Canadian wells declined to 5,309, from 10,513 in the prior year similar period. Globally, in the fiscal 2015, the well count decreased about 25% to 75,969, from 104,127 in the fiscal 2014.

The rig and well count are expected to go higher only when the price of crude crosses the level of $60 per barrel. The market analysts believe that the price of crude will cross $50 only by year end. Thus, fundamentally, the share price can be expected to remain range bound with bearish bias.

Technically, the chart reveals that the stock has a major support at 6.80. On the upside, major resistance exists at 8.80 levels. The stochastic indicator reflects an overbought scenario.

Tesco Corporation - Technical Analysis - 31/03/2016

Our recommendation is for binary options traders to purchase a one touch put option contract with expiry in the last week of April. A target level of about $7.50 would be ideal for this put option trade.

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Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.


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