long $HAL on double bottom pattern, bullish sentiment for crude

7 Okt

I am going long HAL via options for the following reasons:

1. CL1! closed the week before last at the second lowest level of the year. The following week, i.e. last week, oil emphatically rejected these lows with a 10% gain, showing the highest weekly trading volume of the year. This move continued today with another 3.7% gain.
2. I believe that drilling activity is close to a bottom. Last week Baker Hughes reported 479 oil rigs in operation in North America. That's the second lowest weekly number since the beginning of 2022. I don't see Western countries ending their embargo of Russian oil any time soon, there's the potential for Israel to strike Iran's oil export infrastructure, the Strategic Petroleum Reserve continues to hover near 16-year lows, and there's always another hurricane brewing in the Gulf of Mexico. With all that going on, I believe that US producers will be smart to put a few well completions into their back pockets, just in case.
   
3. HAL is the cheapest of the big three oil services companies on a fwd EV/EBITDA basis. Management expects 2024 FCF to grow at least 10% from 2023 (analysts penciled in 20% growth), and they expect drilling activity to increase in 2025 from 2024H2 levels.
   
4. HAL currently presents a double bottom pattern on the daily chart. Since 2021 these patterns have had a very high probability to hit their target for HAL.

I think this trade is attractive on multiple time horizons. Mine is relatively short (I expect to be out before the Nov 7 earnings release). This is no recommendation, of course. Please do your own research.