Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Continental Resources (CLR) stock fell 11.75% today and is down a whopping 57% since the end of August:
WTI Crude Oil Spot Price data by YCharts
So what: Oil prices continue to decline, with Brent crude, the international standard for oil, falling 4% today, and WTI crude, a U.S. pricing standard, falling to $63. Oil prices are down more than 40% since mid-June, and it's pretty clear that the market doesn't see an end to low prices around the corner. Factor in the time of the year -- tax-loss sellers could be trying to offset gains in other stocks -- and you have another big decline.
Now what: Chances are that Continental founder, CEO, and controlling shareholder (he owns 67% of the company's shares) Harold Hamm is at least partly responsible for the beating his company's stock has taken. Back in November, Continental announced that it was cashing out all of its oil price hedges, essentially exposing the company to all of the downside to falling oil prices and calling OPEC's bluff. Well, OPEC didn't blink and announced last week that it would maintain production levels for now, sending global oil prices even further down. Two weeks ago I wrote that Hamm was taking too big of a risk, and unfortunately, I was right.
Hamm lost a very big bet -- at least so far -- and Continental stock is the lowest it's been in more than a year. Frankly, there's no evidence that it's bottomed out, and until something changes -- meaning production cuts in the U.S. and in OPEC countries -- oil prices will stay at levels that probably aren't profitable for many of Continental's wells. Until oil prices start to rebound, it's probably best to keep Continental on your watch list.
