The Valero Energy Corporation (VLO) is a Fortune 20 company from San Antonio, in the United States. They are one of the biggest refiners and marketers of transportation fuels, petrochemical products, and power.
Having said that, it is obvious that whatever is happening on the oil market will strongly influencing VLO’s share price that now stands around the high $50 mark.
The oil market experienced tough challenges this year, as we saw prices virtually collapse from above one hundred to below fifty. This was such an aggressive move that oil companies and refineries, like VLO, had to rapidly adapt or lose ground.
There are multiple reasons for the move lower in oil prices:
- Saudi Arabia is pumping oil at record levels in order to face the challenges posed by the US shale oil industry.
- Iran is trying to recover its stake as a worldwide oil supplier now that the Iranian nuclear deal has been signed.
- China is growing at its slowest pace in the last quarter of a century.
- Last but not least, Angola is shaping up to be the African country that is threatening Saudi Arabia’s supremacy in being the biggest oil supplier to the Chinese market.
All of the above lead to record oil production levels, and a buildup in inventories. Therefore, oil prices dipped, and it seems that these prices are here to stay for a while.
Needless to say that lower oil prices brought inflation down and there you go, we have all the ingredients for a central bank’s decisions not to be that easy to take anymore. Especially for central banks that have a dual mandate, such is the case for The Fed (The Federal Reserve of the United States).
Speaking of central banks, it should be mentioned that all of them are looking for lower oil prices to effects the global economy temporarily. I guess the term “temporary” depends very much on the time/horizon one is considering.
Looking at the VLO share price, we can see a rising trend line that is tested right now at the $50 level, and this may offer a great possibility to buy some call options if the Fed does not hike rates at tomorrow’s September meeting. If the Fed does hike interest rates, then my recommendation is to wait for the $40 level to arrive before buying a call option. As for the expiration date, the effects of the Fed decision needs to dissipate, therefore a one-month expiry is highly recommended.
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.
