Chesapeake Energy Corporation (NYSE: CHK)
At the moment, the big talk of the town in the world of investing is oil. Companies like Chesapeake Energy are taking center stage as some of the strongest opportunities in the eyes of investors; and it’s happening for good reason. Last week, we got big news from OPEC that changes the landscape with regard to supply and demand. Below, we’ll talk about that news, how CHK is reacting, and what investors should be watching ahead with regard to this stock and others in the oil and energy sector.
OPEC Sends CHK And Others Skyward
As mentioned above, Chesapeake Energy and others in the oil and energy sector are in the middle of a bull run that’s gone on for several sessions at this point. The run is the result of OPEC news. You see, months ago, OPEC announced that the members have come to an agreement to cut oil production. However, the agreement had its fair share of skeptics, and for good reason.
In the beginning, there was quite a bit of resistance from larger oil producing members like Iraq and Iran. On top of that, the deal announced wasn’t necessarily a deal. No one knew what countries would agree to put what caps on production, and without this bit of info, the agreement is impossible.
Nonetheless, CHK investors and others in the sector got a pleasant surprise on Wednesday. OPEC announced that it had indeed finalized the agreement. Under the terms of the new agreement, the world’s leading oil producers will work collectively to cut about a million barrels of oil per day out of production.
What Does This Mean For Chesapeake?
At first glance, it may not seem as though the OPEC agreement is that big of news, but in all reality, it’s huge. In fact, this news changes the landscape for the oil and energy sector. Think about it, CHK makes its money from oil. The law of supply and demand dictates that when supplies fall, the price must rise. As a result of the OPEC oil production cut, supplies will be down, which will push oil up. At the end of the day, this means larger profits for those in the sector.
What We’re Seeing From The stock
As investors, we know that the news moves the market. Positive news will lead to gains and negative news will lead to losses. In the case of CHK, the industry wide news was overwhelmingly positive. So, it only makes sense that the news was met with a positive reaction in the market. This reaction is continuing in today’s trading session. Currently (11:45), the stock is trading at $7.59 per share after a gain of $0.36 per share or 4.91% thus far today.
What Investors Should Be Watching For Ahead
Moving forward, investors should continue to keep an eye on supply and demand data surrounding oil. At the end of the day, supply and demand dictates the price of oil and the price of oil largely dictates the price of CHK. Also, keep your eyes peeled for a bubble. Unfortunately, big news often leads to bubbles that eventually pop, leading stocks back to where they were before the start of the run. For example, just take a look at the shipping sector over the past month.
What Do You Think?
Where do you think CHK is headed moving forward? Join the discussion in the comments below!