Chesapeake Energy Corporation (NYSE: CHK)
Chesapeake Energy is having an incredibly rough time in the market today, and for good reason. The company is falling victim to lower oil prices. Recently data came out with regard to US oil reserves that’s sending the value of the commodity tanking. Today, we’ll talk about the data, how the market is reacting to the news, and what we can expect to see from CHK moving forward. So, let’s get right to it…
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CHK Tanks On US Oil Data
As mentioned above, Chesapeake Energy is having an incredibly hard time in the market. The stock is falling in tandem with oil, as recent US data surrounding the commodity is causing concerns. A recent study was released today, showing that US oil reserves are becoming a big issue.
According to the data that was released earlier today, the United States now holds larger oil reserves than Saudi Arabia and Russia. This is the first time in history that this has happened. According to Rystad Energy, the United States is estimated to hold about 264 billion barrels of oil. This is a huge reserve when we compare it to Saudi Arabia’s 212 billion barrels or Russia’s 256 billion barrels. This is sending the value of oil downward, and CHK is following the trend.
On top of the news that the United States is now holding more oil than Saudi Arabia and Russia, investors are also concerned about rig counts in the country. In fact, during four of the last five weeks, US rig counts have been heading upward. Over this period of time, 10 more rigs have come on board, adding to the global supply glut. Today, the US has 431 operational oil rigs. That number is up by 10 over the past 5 weeks. This, unfortunately, is more bad news for CHK and its investors, as it insinuates further declines in the commodity to come.
How The Market Reacted To The News
As investors, one of the first things that we learn when we get started in the market is that it is very important to watch the news. After all, the news causes movement in the market. When good news is released about a publicly-traded company, we can expect to see gains in the stock associated with that company. Adversely, negative news leads to declines. Unfortunately for Chesapeake Energy, the news that was released was overwhelmingly negative. It shows that supply glut issues in oil are continuing in a big way, which will weigh on the company’s profits. As a result, we’re seeing sharp declines in the value of the stock today. Currently (2:09), CHK is trading at $4.22 per share after a loss of $0.38 per share, or 8.17%, thus far today.
What We Can Expect To See Moving Forward
Moving forward, I have an overwhelmingly bearish opinion of what we can expect to see from CHK. The company’s profits are largely derived from oil. Therefore, it is highly susceptible to changes in the price of oil. Unfortunately for Chesapeake Energy, and its investors, the landscape with regard to oil simply isn’t looking great at the moment.
First and foremost, the supply glut surrounding the commodity continues to grow. This will only cause oil to continue to fall in value. In return, CHK is likely to yield lower revenues and diminishing profits. However, that’s not where it stops. Another big key here is the fact that the global economy isn’t looking great. With the Brexit in mind, China struggling, and the US barely staying above water, economic conditions around the world are very concerning. This means that consumers are likely to work to use less oil, reducing their expenses. Unfortunately, reduced demand is likely to lead to more declines in the commodity and more hardships for CHK.
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What Do You Think?
Where do you think CHK is headed moving forward and why? Join the discussion at TalkTRENDZ from CNA Finance!
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