What Direction Is Marathon Oil Corp. Moving?

The following is a contributed article from a content partner of Benzinga

Geopolitical Factors Have Combined to Boost Crude Oil Prices

Source: Benzinga Marathon Oil MRO

Crude oil prices are impacted by myriad factors, notably demand and supply considerations. The pandemic has not helped matters, owing to substantially decreased levels of manufacturing, production, and supply. Among the many factors impacting the price of crude oil a.k.a. black gold, are macroeconomic variables such as GDP, and dollar strength/weakness.

With global activity grinding to a halt by April 30, 2020, demand for crude oil cratered. It dropped to $21.04 per barrel (on average for the month), before beginning its inexorable ascent towards the March 28, 2021 price of $60.97 per barrel.

Crude oil prices have been climbing sharply ever since October 31, 2020, with the following average crude oil spot prices recorded:

• March 31, 2020 – $32.20

• April 30, 2020 – $21.04

• May 31, 2020 – $30.38

• June 30, 2020 – $39.46

• July 31, 2020 – $42.07

• August 31, 2020 – $43.44

• September 30, 2020 – $40.60

• October 31, 2020 – $39.90

• November 30, 2020 – $42.30

• December 31, 2020 – $48.73

• January 31, 2021 – $53.60

• February 28, 2021 – $60.46

For March - April 30, 2021 – the EIA (Energy Information Administration) anticipates $65 – $70 per barrel. West Texas Intermediate (WTI) – the US benchmark for crude oil, and Brent crude oil (OPEC) producers have been beset by declining demand ever since the pandemic struck.

This decreased demand naturally results in supply cuts to maintain oil prices at a specific level. With production cuts slated to continue at least for several more weeks among OPEC producers, prices will be artificially maintained to clear existing demand.

Should Blocking Suez Canal Helps to Artificially Boost Oil Prices

Source: CNN ‘What it’s Really Like Steering the World’s Biggest Ships’ Graphic by Sarah-Grace Mankarious and Marco Chacón, CNN • Updated 28th March 2021

Recent geopolitical events have impacted the pricing of crude oil, notably the ship blocking the Suez Canal. In late March, the Ever Given container ship had its rudder get stuck in the Suez Canal. This massive container ship (400 m long, and regarded as one of the largest cargo ships in the world) recently got ensnared in the mud in the all-important Suez Canal.

Consider that the Ever Given is the same length as the Empire State building’s height. The container ship slammed into the side of the Suez Canal, brought on by raging 40 knot winds and poor visibility.

Earlier on in February 2021, a massive freeze gripped state of Texas and resulted in the loss of 111+ lives, ostensibly from hypothermia. The winter storm also resulted in tremendous numbers of car crashes, the failure of medical equipment, and the lack of oxygen. At the time, the Texas freeze was bullish for crude oil prices, notably stocks to watch like Marathon Oil Corporation MRO.

Rising demand, and a slowly recovering global economy are also fuelling oil price hikes. Back in late February, 2021, Goldman Sachs boosted its forecasts for oil prices, notably WTI crude oil to $72 per barrel by Q3, 2021. Among the reasons cited for rising oil prices are declining inventories, higher marginal costs of operations to restart oil drilling after the big freeze in Texas, and a rapid increase in demand after the storm.

It is estimated that the big freeze resulted in a drop of 1.5 million BPD in global output by the state of Texas. This also results in production cuts of 0.2 million BPD in the month of March 2021.

And then there's a third track taking place which is also working to prevent oil prices from rising too sharply – increasing output from OPEC nations like Saudi Arabia to prevent Iran and Russia from enjoying the lion's share of profits derived from oil price recoveries.

By increasing production, Saudi Arabia is effectively flooding the market with crude oil, thereby dropping prices and undercutting profits for its arch rivals Iran and Russia. As it stands, OPEC nations are not overly concerned about WTI crude oil producers, notably frackers in the US.

The high cost of operations in North America make it impossible for WTI crude oil producers to compete with OPEC producers on a meaningful level. By flooding the market with crude oil and keeping prices artificially low, the Saudis and their partners can put WTI crude oil producers out of business.

Trends with Marathon Oil Corp. MRO?

Source: StockCharts MRO March 26, 2021

Marathon Oil is trading around $11.11 per share (March 26, 2021). The 50-day moving average price is $9.89, and the 200-day moving average price is $6.60. This indicates that short-term price movements have wrenched the price up significantly. The stock got its much-awaited boost in November 2020, and has gradually been increasing ever since.

Several useful technical indicators reveal trends taking place with MRO. Bollinger Bands present as an effective technical tool for price ceilings and support levels. The upper Bollinger Band is at $13.07, the center band is that in $11.53, and the lower band is at $9.99. Viewed in perspective, the price is right where it's supposed to be, in consolidation territory.

Several factors can raise or drop the price of MRO, notably supply and demand-side variables. If OPEC increases production, this will negate the effectiveness of increased production from MRO. The likely result is bearish. If OPEC reduces production, to allow oil prices to rise, this bodes well for MRO stock prices and we will see a reversal from the short-term downward trend that has been taking place.
Analysts at Yahoo! Finance have adopted a bearish short-term and mid-term approach to MRO, with a bullish long-term approach. While deemed overvalued, Marathon Oil Corporation MRO has a market capitalization of $8.759 billion, with an earnings beat in Q4 2020, and a possible earnings beat in Q1 2021. If the actual earnings per share surpass the expected earnings per share, this will certainly help MRO prices to rise.