There hasn’t been a lot of good news coming out of the oil industry lately, and now that the price of oil has once again dropped—this time 3 percent in weekend trading—it looks like there is going to be more bad news coming from this front in the near future. However, there is also good news coming in unexpected places. Halliburton, the world’s second biggest oilfield services company, recently announced their earnings, and they were far better than expected.
Halliburton’s reported earning stood at $0.31 per share, much above what the expected number was: $0.24. This number does not take into account the acquisition of the company Baker Hughes, Inc., which is still pending, but this was already acknowledged in the price estimate of $0.24.
In other words, Halliburton crushed expectations, even though their industry is crumbling apart around them. As if to underline this fact, Halliburton saw their revenue fall by 42 percent overall, down to $5.08 billion. In North America, revenue dropped by 57 percent thanks to poor pricing and a decline in drilling activity. For the year, the company posted a loss of $28 million. If you compare this to what the company saw a year before, the contrast is huge. For the previous year, the company saw a profit of $901 million. Halliburton’s stock has dropped in price by 40 percent over the last year. It might not be time to go long here just yet, but things are beginning to turnaround. The big X factor is, of course, what oil is going to do in the coming months. And right now, nobody has an answer to this.
It is earnings season, and as U.S. stocks are struggling, good news like this is needed. However, the major issues that are weighing stocks down do still remain, even if some companies like Halliburton are doing well. There’s a long way to go, but this seems like it could be the start. The oil industry will struggle in 2016, and pretty much every company involved, including Halliburton, has publicly acknowledged this. Still, to see that not everything is in decline and that a bear market is not going to harm everything is a very optimistic bit of news. There are huge obstacles to overcome, but not all is doom and gloom.
Traders shouldn’t get too excited about the price of crude oil yet, though. The long term outlook for oil is still up in the air, and many smaller companies are at risk of going completely bankrupt. But with some companies showing signs of life, there is positive mixed in with the negative. This industry has the potential to recover, and even if that doesn’t happen in 2016, there’s potential, and that should prevent the bears from dominating the year. Binary options traders might not yet be able to confidently place yearlong call options for crude oil, but the potential for these to be profitable is beginning to emerge. For now, the best course of action is to keep your crude trades short term, limit your exposure to the market, and find areas of opportunity where there is more certainty. It doesn’t matter if your trades go long or short, but rather the important thing is to keep a focus on profitability. And right now, oil is far too unpredictable to look at unless you have great short term technical analysis tools at your disposal.
In the end, Halliburton is not a good litmus test for the oil industry as a whole, simply because they are so huge. Drilling requires a lot of reserve capital, and Halliburton has this to spare. Most other companies do not and they are seeing their debt escalate as a result. This is another factor to keep your eyes on as the situation develops.