The last article I wrote on ConocoPhillips (COP), I thought the stock would continue to move up. One of the things I liked about the company was the strategy it was using to rid itself of non-core assets that would help reduce operating expenses. I did mention ConocoPhillips is ready to sell its stake in Kazakhstan's Kashagan oilfield, and the Central Asian nation is eager to acquire this share. And this has been all over the news lately. The Kashagan Field, located in the shallow waters (about five to eight meters) of the Kazakh North Caspian Sea, is one of the world's largest development projects. ConocoPhillips intends to sell its Kashagan stake to Oil and Natural Gas Corp Videsh for about $5 billion. Oil and Natural Gas Corp (ONGC) is expected to make the purchase.
One of the major influences on COP and companies like it is the price of oil. Price is usually influenced by demand.
Increased Oil Prices Long Term
Some analysts believe oil will continue to turn and increase in price as time progresses because of the increased cost in resources to produce that gas and oil. The increase may not so much depend upon demand as it may be in the accessibility of the oil. The harder it is to extract, the more expensive it will be - this is just plain logic. The 20 largest oil fields in the world account for roughly 25% of total global oil production. The surge of domestic oil production in the U.S. we may see because of the hydraulic fracking technology is merely offsetting the current declining rates of old production. As China and India continue to grow, so will the demand, and prices will gradually continue to increase. 2013 may not be the year but 2014 looks like it may be better.
Decrease Oil Prices Short Term
Prices in 2013 may not grow that much unless demand picks up. It is still economically influenced by a slow global economy. Way back in February of 2012 the over supply was seen. Raymond James analyst Praveen Narra was quoted as saying the following:
"We are notably bearish on the near term oil price environment given that we see a fundamental oversupply of oil. Our overriding outlook continues to foresee slowing global growth (which) consequently should persist in undermining (oil) demand."
The slower economic growth forecasted for 2013 (reduced to 3.4% from 4.2%) translated into the continued low cost of oil. This does not mean we will not see up and down prices in oil as demand rises and falls in 2013. But for a long-term bullish run, I cannot find any view points that lean that way for 2013.
My Thoughts on Long-Term Investing in ConocoPhillips
If I was interested in investing in this company long term there are some things that I like. I have written about the company's non-core asset sales and I think this is important for long term investing and growth in the company. But if I am expecting the stock to take off in 2013, I may be deceiving myself. If I look past 2013 the future looks like a good investment. If I am prepared to possibly give up growth in 2013 and rely on a good dividend, it could be a good investment.
My Thoughts on Short-Term Income Investing
From my observations, I believe it is important here is to define the short-term direction of the stock. Right now, the stock could be at the beginning of either a bearish trend or defining a trading channel. Since I am uncertain of the direction of the stock, I would want to wait until I have a better idea. As I do not see the economy turning around soon or the demand for oil increasing substantially, I do not believe the stock will continue in its four month bullish trend. I would need to see a more clearly defined direction in the stock before I would put together a trade.
COP had a good steady climb for the last four months in a bullish peak and valley pattern. But the recent dip could be the beginning of the end of the uptrend. The 50 day MA has been the support level but this dip plunged far below that. The RSI sailed into bearish territory and the MACD seemed to follow. There is nothing special about this as both are following the movement of the stock, so I have not observed anything significant here. What I might take note of is the trend line I have drawn. It appears the real support line might turn out to be the new resistance. The last peak bounded off what used to be support. As the Bollinger Bands have widened, we may see more volatility for the stock.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.