Seadrill Ltd (NYSE: SDRL) is climbing in the market today, and like recent gains that we’ve seen from the stock, there is no news that has been released by the company. So, what’s the deal? Well, the price of oil is headed up, and many argue that these gains are going to continue. Of course, the company is centered in the oil industry, meaning that when oil gains in value, we can expect to see gains here too! Today, we’ll talk about:
- Why SDRL is climbing;
- what we’re seeing from the stock
- why this might be the tip of the iceberg;
- and what we’ll be watching for ahead.
Why SDRL Is Climbing
As mentioned above, the gains that we’re seeing in Seadrill today have nothing to do with news the company released. Instead, we’re seeing strong gains in the stock as the result of increasing oil values. Recently, oil has been climbing in value as geopolitical tensions between the United States and Iran lead to concerns with regard to supply. In fact, the Trump administration recently placed sanctions on Iran, the third largest oil producer in OPEC. As a result, Iranian oil has been cut off from much of the developed world. With this in mind, oil is headed for the top in value, leading to excitement surrounding companies in the industry like SDRL. Nonetheless, this story is minimal compared to what’s coming just 18 months from now. We’ll get into that a bit later.
What We’re Seeing From The Stock
With the value of oil on the way up, investors see opportunity for Seadrill to improve revenue and it’s overall financial stability. So, with the gains in the commodity, it’s no surprise to see that excited investors are sending the stock toward the top. Of course, our partners at Trade Ideas were the first to alert us to the gains. Currently (10:51), SDRL is trading at $0.48 per share after a gain of $0.065 per share or 15.64% thus far today.
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Why This Is Likely The Tip Of The Iceberg
When it comes to SDRL, we believe that the gains we’re seeing at the moment are minimal compared to what we’re going to see in the long run. There are a couple of reasons for this:
- Iran Sanctions Aren’t Likely To Be Lifted Soon – At the end of the day, the United States and Iran have been at odds for years when it comes to the use of and legalities surrounding a country’s possession of nuclear weapons. That’s what these sanctions are about, and it’s not the first time. Historically, sanctions placed on Iran last for years, and this time around isn’t likely to be any different. So, the continued pressure on supply due to this issue is expected.
- International Maritime Organization Rules Coming Into Effect – While oil continues to get a boost due to a diminishing supply glut, another catalyst is around 18 months away. There’s going to be a big change at sea that will take place on January 1, 2020, when the International Maritime Organization will enforce new emissions standards that are designed to curb pollution produced by ships around the world. Due to an overhaul of fuels produced by refineries, many experts, including the analysts at Morgan Stanley believe that oil will climb in value. In a recent note, Morgan Stanley had the following to offer with regard to the price of oil:
We expect the crude oil market to remain under-supplied and inventories to continue to draw… This will likely underpin prices.
At the end of the day, the market seems to be primed for further gains in the value of oil. As the value of the commodity sees gains, we’re likely to watch as SDRL heads for the top as a correlated asset!
What We’ll Be Watching For Ahead
Moving forward, the CNA Finance team will continue to keep a close eye on SDRL. In particular, we’re interested in following the story surrounding the oil industry as gains in oil will likely continue to lead to gains in the stock. Nonetheless, we’ll continue to follow the story closely and bring the news to you as it breaks!
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