Tullow Oil share price forecast: navigating through the 2020 turmoil
18:24, 14 July 2020
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Tullow shares were already on course for a crash before the Covid-19 pandemic kicked in. A series of bad news stories, including a boardroom shakeup and a cut in its dividend and expected output for 2020, had already created enough negative momentum to plunge the stock from £2.50 to less than £0.50 per share in only a matter of months.
Entering the year in this situation probably ended up making things worse for the Ireland-based oil production company, as the February sell-off triggered by the coronavirus health emergency sent its shares on another wild ride down, dropping from £0.60 to a year-to-date bottom of £0.08, as investors feared the worst.
Low oil prices, significant uncertainty about the pace of the global economic recovery and concerns about the company’s own ability to survive the downturn given its high indebtedness have contributed to keeping the price of TLW shares in a range of £0.20 to £0.40 since mid-April. No price action has been seen in recent sessions, which only adds to the complexity of drafting a Tullow Oil share price prediction.
Tullow Oil share price forecast
Due to the relative stability seen on the one-day chart lately, traders should probably focus on the hourly fluctuations of the stock if they are seeking to profit from potential upward or downward movements in the price of Tullow Oil shares.
This one-hour chart shows that the stock has been trading in a relatively predictable pattern since July 25, finding support at the £0.30 level and seeing significant resistance at the £0.32 level.
However, in the past few days, the stock has pushed beyond this hourly resistance level and has actually broken through it twice, even though it has failed to surpass the 200 DMA.
At this moment, the price seems to be headed downwards, possibly following the same pattern we have seen recently, and potentially pushing down towards the £0.305 support line or lower.
Both the RSI and the accumulation/distribution indicators are pointing down, which could provide further evidence that the stock could be riding another wave of red-zone closings, following the price channel pattern we have seen lately.
On the other hand, even though the one-hour chart seems to be pointing to another cycle of negative performance, there’s also a potential falling wedge forming and since the trend continues to point up, a breakout could take place after the pattern reaches its breaking point.
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Tullow Oil share price news
One of the most important bits of TLW share news was the trading update provided by the company in late April, when the firm disclosed some of the measures it has been taking to contain the fallout caused by falling oil prices and a succession of bad news regarding its production capacity.
The first and most important highlight of this update was the successful sale of the company’s interest in Uganda, totaling $575m (£458m, €504m) in proceeds that contributed at least 60 per cent to the company’s goal of raising $1bn in cash to reduce its debt.
Additionally, Tullow announced that a new chief executive officer, Rahul Dhir, had been appointed by the board and will join the company this month. This is an important milestone for Tullow and could be the beginning of more good news if Dhir manages to do a good job in steering the company’s battered finances and production outlook.
Meanwhile, the company has also benefited from taking income from the derivative contracts it entered into to hedge against lower oil prices, and the update provided some guidance as to what investors could expect to see in 2020 from this move.
In this regard, the company said that at least 60 per cent of its revenues for 2020 were hedged by these derivatives, with a floor of $57/bbl.
Tullow Oil shares: buy, sell or hold?
The most recent broker recommendation issued for Tullow Oil came from Peel Hunt LLP in early June, when the firm reiterated that the stock is a buy, pointing to a 12-month target price of £0.40 per share.
Meanwhile, other firms like Canaccord set a higher target at £0.60 but rated the stock as hold in late January.
Given the fact that the coronavirus crisis hasn’t been fully contained yet, and considering that certain major oil consumers such as the United States and India may be about to face the worst of the pandemic, oil demand may continue to be volatile for the next quarter, making it difficult to tell how oil prices will behave and how they can potentially affect Tullow Oil revenues for the remaining part of the year.
Even though the company has taken certain steps to hedge against unfavourable oil price movements, a big portion of its sales (40 per cent) are still subject to this volatility and lower oil prices could end up affecting the company’s bottom line in the next few quarters.
 share price forecast.png "Tullow oil (TLW) share price forecast")
From the 19 analysts surveyed by the Financial Times, only four rated the stock a buy; nine said investors should hold on to their shares; and six pointed out that it may be time to sell.
Meanwhile, price targets ranged from £0.08 to £1.59, with the median target price being £0.24, putting the stock’s potential 12-month performance between 400 per cent and -75 per cent.
The degree of dispersion in the Tullow Oil share price forecast 2020 strengthens the notion that it is hard to predict what the future may be holding for this Irish oil producer, given the company’s internal obstacles – including an ongoing restructuring and a leadership change – and the uncertainty of its external environment.
Final words
Based on the technical analysis outlined above, there are reasonable grounds to say that the TLW share price forecast in the very short term may be bullish, possibly pointing to a breakout once the stock reaches the tip of the wedge, even though it is hard to say how high that breakout may go.
At first glance, if such a breakout is to occur, the next stop for Tullow may be the £0.35 resistance, and possibly the £0.40 level if the stock somehow manages to break through that one as well.
