Schlumberger Limited (NYSE: SLB) is the world’s biggest oilfield services company and a global powerhouse. They have more than one hundred thousand employees and operations in more than 85 countries. This says much about their diversification as well as the opportunities that appear when you’re such a big presence. However, they have had a challenging 2015 as oil moved below $50/barrel. This drop in oil pricing means producers have looked into cutting costs, which usually includes cutting the costs of research.
This year may be the most challenging year so far for the oil industry, as the drop in prices coupled with OPEC keeping the output at record levels is inflicting enormous damages on that entire ecosystem.
The Iranian energy deal is to be implemented this year. This means that even more oil will flood the markets and pressure prices, which is likely to remain low. As a matter of fact, recently an Iranian official called for OPEC to cut the output in order for oil prices to bounce back to the $70-80/barrel – as current levels are simply unsustainable for oil producers.
Schlumberger seems to be affected as it reported lower than expected revenues, and its forecast was slashed for the second consecutive year. This is despite already cutting around twenty thousand jobs so far. The company announced that more layoffs will follow in order to return to profitability in this challenging environment.
Looking at the competitors, Halliburton is suffering in the current environment as well. They have had to make considerable cuts to show profits. With that, we can conclude that the fundamental side of the story is not that bright.
The technical picture shows even more negative signs, in the sense that the market has formed a head and shoulders pattern on the bigger time frame. From my point of view – the neckline on this is already broken. However, it is expected that the neckline retests in such a pattern, so I wouldn’t be surprised to see that happen in this case as well.
As a consequence, I am favoring a put option by the time the neckline is retested. This means the market should move a bit higher from the current $74.51/share level.
The perfect striking price for the put option should be anywhere between $79.50 and $80.50/share. The recommended expiration date should be one month as the pattern is forming on the bigger time frame and we need some time for the price to move.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
