Forecasting Prices for XOM, CVX, RDS.A, and BP in 1Q18



Implied volatility

Integrated energy stocks’ implied volatility fell in 4Q17. ExxonMobil’s (XOM) implied volatility fell more than that of peers BP (BP), Chevron (CVX), and Royal Dutch Shell (RDS.A).

During 4Q17, XOM’s and Shell’s implied volatility fell 1.6% and 1.4%, respectively, to 11.4% and 12.7%. The change was weaker for CVX and BP, whose implied volatility fell 0.7% and 0.5%, respectively, to 13.5% and 14.3%. BP has the highest implied volatility. In 4Q17, XOM rose 2.8%, while CVX, RDS.A, and BP rose more sharply, by 6.9%, 9.4%, and 8.7%, respectively. Contrarily, the SPDR Dow Jones Industrial Average ETF’s (DIA) and the SPDR S&P 500 ETF’s (SPY) implied volatility rose just 0.9% to reach 8.7% and 7.2%, respectively. DIA’s and SPY’s value rose 9.9% and 5.5%.

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Forecasting 1Q18 prices

Considering integrated energy stocks’ current implied volatility and assuming a normal distribution of prices (a bell curve model) and standard deviation of one (with a probability of 68.2%), we can forecast integrated energy stocks’ upper and lower price limits in 1Q18.

As shown in the above chart, BP stock could have the largest percentage gain or loss in 1Q18, closing between $44.70 and $38.70 per share. Contrarily, XOM could have smallest gain or loss, closing between $88.70 and $79.10 per share. Shell could close between $70.50 and $62 per share, and CVX could close between $134.10 and $117 per share. In the next part, we’ll review analysts’ ratings for integrated energy stocks.


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