Two Oil Stocks Benefiting from Crude's Rally

09/03/2015 9:00 am EST

Focus: ENERGY

Michael Berger

President & Founder, Technical420.com

Michael Berger, of Technical420.com, thinks crude's rally can be described as "nothing less than a volatile explosion upward." Although the price of crude declined by more than 8% on Tuesday, Michael outlines how the rally helped these two oil stocks rally off of recent lows.

The price of crude oil has rallied off of recent lows and crude oil bears and shorts should take note. Crude’s rally can be described as nothing less than a volatile explosion upward. Over the course of three consecutive trading sessions, crude prices increased by more than $10 per barrel. This rally has left many investors wondering what the catalyst behind this was.

To break down this rally, we should start from the beginning. Last week, on Thursday, crude rallied around 10% following rumors that Venezuela was seeking an emergency OPEC meeting in a response to low oil prices. The next day, prices jumped another 6% as fears of a renewed Yemeni conflict began to surface.

On Monday, crude prices climbed another 8% after OPEC’s in-house magazine included language indicating growing concerns over low oil prices and the Energy Information Administration (EIA) revised United States production data lower.

Tuesday, the Department of Energy (DOE) reported that from May to June total United States crude oil production declined by 104,000 barrels per day. The production numbers from January to May were also revised down by approximately 40,000-130,000 barrels per day.

Increased M&A Activity Despite Low Oil Prices

On Monday, LINN Energy (LINE) and LinnCo (LNCO) announced that they completed the sale of its Permian Basin acreage. The closing of this transaction helps ease concerns that the buyer might walk away from the deal due to declining crude oil prices and it should bring in approximately $281 million in net proceeds.

This sale comes after LINN Energy's management team recommended suspending its dividend at the end of the third quarter of 2015. Management made this recommendation as the company adjusts to the low oil price environment and focuses on improving its balance sheet. The market did not react favorably to this news and shares fell by more than 50%.

Going forward, LINE is concentrated on cleaning up its balance sheet and will be heavily focused on this feat over the next 12-18 months.

Oil Stocks Surge Off of This Rally

Although the price of crude declined by more than 8% on Tuesday, the explosive rally helped oil stocks rally off of recent lows. During the last week, LINE and LNCO are up 60% and 34% respectively.

We continue to monitor commentary and data released by the EIA, DOE, and OPEC for further insight into where the price is headed.

Michael Berger, Founder and President, Technical420.com

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