Monday, September 21st, 2020

Options Trading the Chevron Oil Spill in Brazil


Options trading the Chevron oil spill in Brazil took a new turn recently. A Brazilian court is requiring that 17 employees of Chevron and Transocean, an oil rig operator, surrender their passports. Brazil appears to be ready to press criminal charges against the individuals involved, on top of a civil law suit for eleven billion dollars. All this is about an oil spill in the waters of the Atlantic far off the coast of Brazil. Here is the background. Geologists have found gigantic quantities of oil in the deep Atlantic waters off the coast of Brazil.  These finds promise to take Brazil into the ranks of the top oil producers in the world. Already the country is the largest exporter of ethanol. The Tupi field, promises 8 billion barrels and the Carioca-Sugar Loaf may have as many as 33 billion barrels. These are both parts of a larger geologic formation called the Santos Formation. In trading oil options, oil futures or stocks, main issues are supply and demand. But, if the company involved cannot successfully and profitably extract and deliver oil from its lease, profits and stock price can fall appreciably. Here is where the details of options trading the Chevron oil spill in Brazil come in.

A major issue for options trading the Chevron oil spill in Brazil has to do with the difficulty in extracting oil from these newly found deposits. The Carioca field is 170 miles from the coast of Brazil where the water is more than a mile deep. Beneath that there is a shelf of salt that is more than a hundred miles wide and four times that in length. Because of the extreme depth of these deposits, companies such as Chevron need to use newly invented, high tech, approaches to drilling and extracting the oil. In this case the cost of failure may exceed that of the BP oil spill in the Gulf of Mexico. How to trade options in this situation may have more to do with internal politics in Brazil and less to do with just how much oil was spilled.

Chevron Corporation, CVX, is currently trading at around $110 a share. It bottomed out in the $58 dollar range during the depths of the recession. During the last year CVX has shown a degree of volatility with the stock trading at times as low as $85 a share. In regards to options trading the Chevron oil spill in Brazil could become a financial issue if Brazil decides on excessive punitive damages for the recent spill. According to press reports, BP executives believe that Brazil is excessively concerned about a fairly minor oil spill. That opinion does not sit well with Brazilians who demanded that the head of BP in Brazil come to talk to the legislature. The legislators were less than impressed when the individual needed to speak to them through a translator and now in Portuguese, the language of Brazil. Now this individual is handing in his passport and awaiting the outcome of various court proceedings. Profits in trading Chevron stock or options trading the Chevron oil spill in Brazil may well be gained by watching the political drama unfolding in Brazil. When to buy puts on CVX may well when and if a court ruling is about to be handed down in either the civil or criminal matters pending in Brazil.

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