Crude oil prices
On November 30, 2016, OPEC agreed to cut production by 1.2 million barrels per day, and non-OPEC producers including Russia have also agreed to cut production by 0.6 million barrels per day. Since then, crude oil (USO) prices have been reacting positively and are on the rising trend as OPEC and non-OPEC producers are sticking to their agreed productions cuts. This move has the potential to reduce the supply-side excesses in world oil markets.
So far in 2017, crude oil (USO) prices are consolidating at higher levels in a range of $55.24–$50.71 per barrel.
Why Encana is rising
Encana (ECA) has been reacting positively to the rising crude oil prices since the OPEC production cut agreement. For the first four weeks of 2017, ECA stock has outperformed crude oil prices and risen from $11.74 to $13.00.
Per Encana’s press release on January 4, 2017, Encana increased its production growth and margin forecasts for 2017. Encana now expects core production growth from 4Q16 to 4Q17 at the higher end of or above its original core production growth guidance range of 15%–20%. Encana also increased the 2017 margin guidance to $10 per boe (barrel of oil equivalent) from $8 per boe. Encana’s margin forecasts are given assuming $55 per barrel for WTI crude oil and $3 per MMBtu (million British thermal units) for Henry Hub natural gas pricing.
To know more about Encana’s growth plans for the next five years, read Market Realist’s Encana: Update on Its Five-Year Growth Plan. ECA peers Pioneer Natural Resources (PXD) and CONSOL Energy (CNX) were up ~1% and ~4%, respectively, in 2017. Southwestern Energy (SWN) fell ~13% during this period.
Let’s now look at the possible trading range for ECA stock this week based on its implied volatility.