Why Centennial Resource Development Stock Jumped 7% at the Open Today

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What happened

At the open of trading on March 26, shares of U.S. energy driller Centennial Resource Development (NASDAQ:CDEV) rose 7%. On Thursday, March 25, the stock fell in early trading. And the day before that, March 24, it rose. All of these alternating moves relate to the same general issue. 

So what

The direct reason for the stock price moves here is that oil prices have been bobbing up and down in recent days. As an exploration and production company, oil price volatility logically has an impact on Centennial Resource Development’s share price. Over the past year or so, in fact, the stock has been fairly volatile, as have oil prices, so the stock moving in sympathy with oil prices, which were on the rise early today, isn’t surprising.    

Image source: Getty Images.

The bigger issue at play, however, is that there is a container ship blocking the Suez Canal. It managed to get lodged, sideways, in this vital connection between the Red Sea and the Mediterranean Sea on March 23. It’s a big deal because a lot of ships use the canal, including oil tankers. At first investors were bullish on oil thinking that the disruption would lead to supply issues. The very next day investors seemed to adjust their tune, assuming that increasing coronavirus cases would reduce demand and that existing oil in storage would be sufficient to hold the world over until the ship was dislodged. Today sentiment has whipsawed again, with ships being sent around Africa (which is both expensive and time consuming) and a still uncertain, and perhaps long, road ahead before this vital shipping artery is back to normal. Oil prices moved higher.   

Now what

Clearly, oil prices can be moved swiftly and dramatically by the combination of news and mercurial investor sentiment. That is also an issue for the shares of Centennial Resource Development, as the last three days have clearly shown. In the long term, the Suez Canal mess will eventually be taken care of and the oil market will get back to some semblance of normal. So long-term investors shouldn’t read too much into the ups and downs in Centennial’s stock right now. However, they should be ready for more up, and down, days ahead as Wall Street digests the daily updates on the container ship that, at this point, is still blocking the Suez Canal. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.