Total SA (NYSE: TOT) is facing a difficult time like many major oil companies these days. Lower oil prices made revenues shrink and there is no sign that oil prices will recover anytime soon.
As a matter of fact, just this previous Monday, the US markets closed for the Labor Day holiday. Oil fell as much as 3% as oversupply and overproduction are still weighing in heavily on the “black gold”.
Speaking about oversupply and overproduction, one of the biggest countries that Total is active in, Angola, just became Africa’s largest oil-producing country after stealing first place during Nigeria’s troubled period. This is big news for Total as it is the biggest oil producer in Angola, and this says much about the record production levels we’re seeing in the world.
There is a strong tendency for this trend to continue in the next few years and even beyond, and this should lead to piling inventories.
Without a strong global economic recovery, it will be very difficult for these inventories to be consumed and this means lower oil prices are here to stay.
A low inflation environment (there is no sign of inflation in any of the capitalistic countries of the world), and low oil prices should represent a good incentive for economic growth. However, if the global economy does not pick up, (and based on China’s slump there is little to believe that it will anytime soon), the central banks will have to wait some more before normalizing rates.
These above points do not necessarily influence Total’s share price, as in the last ten years, their prices have moved somewhere between the $75/share and $50/share. This was the case no matter how big the oil prices were or how the monetary policy was.
Talking about Total’s price, one cannot fail to observe the bigger time frames and the fact that the current 44 level is way below the above-mentioned range. This means that finally, (after such a long time), the range is over.
This means that the market should find support on the move lower on the previous resistance area and this area is the $40/share level.
As a consequence, I am actually favoring a call option for Total when the forty levels is reached, with as big an expiration date as possible; ideally the end of the month or even more if your broker offers it.
Oil is here to stay and central bankers are talking about lower oil prices as temporary, and I agree with them.
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.
