Investing

Unusual Stock Options Volume for Murphy Oil Confirms Institutional Optimism

Joshua Enomoto

Published: February 1, 2023 10:32 pm

Amid institutional bullishness for the hydrocarbon energy market, oil and natural gas exploration and production firm Murphy Oil (US:MUR) has so far gained over 7% on a year-to-date basis. For the Jan. 30 session, MUR stock represented one of the highlights of Fintel’s screener for unusual stock options volume, with optimistic traders making their presence felt.

Specifically, call volume reached 12,715 contracts compared to the average call volume of only 336, signifying a nearly 38-fold difference. On the other end of the scale, put volume hit 638 contracts, just 53.3% higher than the average volume of 416. Open interest for the call options stood at 7,134 while for the puts, this metric hit 10,719.

Notably, the unusual surge in options volume for MUR stock occurred during rising confidence in a continuation of last year’s energy bull market. About two weeks ago, Reuters reported that China’s economic reopening could boost global oil demand to a new record high, according to the International Energy Agency (IEA).

At the same time, price cap sanctions on Russia could dent critical energy supplies. “Two wild cards dominate the 2023 oil market outlook: Russia and China,” the Paris-based energy watchdog stated in its monthly oil report.

“Russian supply slows under the full impact of sanctions (while) China will drive nearly half this global demand growth even as the shape and speed of its reopening remains uncertain,” the IEA added.

To be sure, domestic recession risks counterbalance at least some of the optimism for MUR stock and similar energy investments. According to another Reuters article from late last year, new research from the St. Louis Federal Reserve Bank reported that “[j]ust over half of the 50 U.S. states are exhibiting signs of slowing economic activity, breaching a key threshold that often signals a recession is in the offing.”

Still, the IEA asserts that “[t]he preeminent driver of 2023 GDP and oil demand growth will be the timing and pace of China’s post-lockdown recovery.”

Currently, Fintel notes that the value proposition of MUR stock – using its proprietary scoring model – rates as 41.48 out of 100. Under this model, a score of 100 signifies an enterprise carrying the most undervalued profile.

In addition, Murphy Oil’s price-earnings (PE) ratio pings at 7.16 times. Relative to the broader oil and gas industry, MUR stock rates roughly around fair value, as Fintel’s valuation score implies.

However, data provided by the New York University Leonard N. Stern School of Business reveals that the average PE ratio for the production and exploration (upstream) component of the energy value chain stands at 20.68 times. By this standard, MUR stock appears significantly undervalued.

This article originally appeared on Fintel