(REN) (CHK) (SGY) | Oil Stocks Likely To Take A Dive

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Resolute Energy Corp (NYSE: REN) | Chesapeake Energy Corporation (NYSE: CHK) | Stone Energy Corporation (NYSE: SGY)

Recently, it’s been incredibly fun to watch energy companies that are focused on oil like Resolute Energy, Chesapeake Energy, and Stone Energy. That’s because we’ve seen a recent spike in the value of oil, thanks to comments made by Saudi Arabia. However, I’m expecting oil to take a sharp dive relatively soon, and that’s likely to weigh heavy on these stocks. Today, we’ll talk about the statements coming out of Saudi Arabia that lifted oil, why I believe oil will fall from recent highs, and what we can expect to see from stocks like REN, CHK, and SGY ahead. So, let’s get right to it…

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Saudi Arabia Gives A Boost To REN, CHK, And SGY

The three oil and energy stocks that we’re tracking all have one thing in common. They are incredibly exposed to spot market prices of oil. Therefore, anything that sends oil upward in value will likely send Resulute Energy, Chesapeake Energy, and Stone Energy up as well. However, when oil declines in value, these stocks decline as well.

One of the big issues with oil has been the fact that Saudi Arabia hasn’t been able to reach an agreement with other leaders in the production of oil around the world. So, production has continued to grow. However, last week, the energy minister in Saudi Arabia said that the country would be willing to do what it takes to reach an agreement. As a result, investors saw a higher likelihood of reduced production, which would send oil’s value up and support growth in REN, CHK, and SGY. So, we saw strong movement last week as a reaction to the news.

Why Oil Is Likely To Fall Hard Ahead

While I would love to say that recent gains in the value of oil are likely to stick around, I simply don’t believe that’s the case. At the end of the day, oil, REN, CHK, and SGY all have a high likelihood of falling hard ahead. There are a few reasons for my opinion on this:

  • We’ve Seen This Before – This isn’t the first time that Saudi Arabia said that it would be willing to do anything within reason to reach an agreement that would boost the price of oil. In fact, we’ve seen it several times over the past year. Nonetheless, a deal never comes to fruition. So, at this point, claims like these are likely hollow. I’m not expecting a deal to come of this. Unfortunately, that’s bad news for Resolute Energy, Chesapeake Energy, and Stone Energy alike.
  • US Oil Rig Count Continues To Grow – The truth is that oil production continues to grow, and that’s going to weigh heavy on the commodity. In fact, we recently received the rig count for the United States. In fact, we just tracked the 8th week in a row where US rig counts were up. Last week, that count grew by 10. This type of trend is what we’re seeing around the world, and it’s a horrible one for oil.
  • China Exports – On top of that, we recently received data with regard to exports in China. Recently, the country has started to ramp up exports of refined oil products in a big way. This will further flood the market, leading to more declines. Another hit to REN, CHK, and SGY alike.

Where These Stocks Are Headed

While I would love to say that REN, CHK, SGY, and other stocks in the sector are going to see gains ahead, I don’t believe that will be the case – at least not in the short run. The bottom line here is that we’re still dealing with a massive supply glut. In sheer disregard of this issue, producers around the world continue to increase production, and that’s only making matters worse. All in all, I’m expecting to see these stocks drop from recent highs relatively soon!

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What Do You Think?

Where do you think REN, CHK, and SGY are headed moving forward? Join the discussion at TalkTRENDZ!

[Image Courtesy of Wikimedia]

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