Rich Gas Prices Drive Statoil Stock to Fresh 6-Year Highs

Statoil ASA (NYSE:STO) gapped higher on better than expected earnings results as the oil giant benefitted from higher prices in liquids and gases.  The company reported that its U.S. shale gas business, supported by production activities in the Marcellus shale formation, realized a robust pricing advantage generating significant profits.

Statoil posted net profit of 23.6 billion kroner ($3.9 billion) in the first quarter, compared with 6.4 billion kroner a year ago. During the period, Statoil nearly doubled its invoiced U.S. gas pricing to 1.49 kroner a cubic meter, from 0.77 kroner in the same period in 2013.

The company commanded 230% more for its U.S. gas than what is typical for local prices in the Marcellus area. Statoil Chief Financial Officer Torgrim Reitan said the pricing power was a significant contribution to quarterly results.

Statoil reported first-quarter 2014 adjusted earnings of $1.22 per ADR comfortably beating  consensus estimate of $62 cents per ADR.

Statoil Stock Momentum

Momentum on Statoil stock has turned positive as the MACD (moving average convergence divergence) index generated a buy signal.  This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread.

The MACD index moved from negative territory to positive territory confirming the bullish MACD buy signal.

The relative strength index (RSI), which is an oscillator that measures overbought and oversold level, is printing a reading near 73, which is above the overbought trigger level of 70, and could foreshadow a correction.

statoil-stock

Break Away Gaps

Statoil stock broke out, gapping above trend line support near $29.5, on strong volume.  A breakaway gap occurs when the price of a stock is breaking out of a consolidation trading range or congestion area. A congestion area is just a price range in which the market has traded for some period.

Volume will generally pick up significantly when a breakaway gap occurs. Most investors did not expected earnings to be as strong as expected as the results were out of the range of every analyst.  The breakaway down gap has caught many investors on the wrong side of the trade, and those investors are now scrambling to cover their short positions.

Support and Resistance

STO broke out above horizontal trend line resistance near $29.50, making a fresh 6-year high, and is poised to test the 2008 highs at $34.70.  Additional support is seen near the 50-day moving average at $27.67.

The weekly chart of Statoil stock shows that the stock has broken out above a consolidation range that was capped by a horizontal trend line near 26.50.  Weekly support is seen near the 2012 highs at $26.50. Momentum is positive with the weekly MACD printing a reading in positive territory with an upward sloping trajectory that points to higher prices.

One caveat it that the weekly RSI, (relative strength index) which is an oscillator that measures overbought and oversold level is printing near 76, which is above the overbought trigger level of 70.

statoil-stock-chart

Trading Statoil Stock

Investors looking to take advantage of the positive momentum in STO could purchase the stock near the break out level, at former resistance at $29.50.

Investors could consider taking profits near $34.70, which coincides with the 2008 highs. That would translate into a profit of 17%.  A close below the 50-day moving average near $27.60 would be a prudent level to place a stop.

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Published by Wyatt Investment Research at