What happened

After ripping higher last week, shares of Denbury Resources (NYSE:DNR) have been falling back to Earth on Tuesday. At 10:45 a.m. EST, the stock price had dipped more than 10%. Driving the decline for the petroleum and natural gas exploration and production company was another drop in the price of crude oil, which slipped about 1% and fell below $55 a barrel after the U.S. government released supply data showing another uptick in stockpiles.

So what

According to the U.S. Energy Information Administration, there are  1.9 million more barrels of oil sitting in storage this week than there were a week ago. Not only is this the second straight week that storage levels have risen, but the result was the opposite of the 1 million barrel decline analysts expected. This suggests that there's more supply than demand, which is not what stakeholders in the oil market want to see.

A long row of pumpjacks under the setting sun.

Image source: Getty Images.

This data release came one day after the International Energy Agency spooked the market by cutting its global demand forecast due to the impact from higher prices and relatively mild early-winter temperatures. That report caused crude to drop more than 2% Monday.

That hit Denbury shares hard because its profitability is closely linked to the price of oil -- its stock tends to be very volatile when oil moves. On Monday, for example, its shares slumped 5.6%.

The issue is that Denbury needs higher oil prices to get back on solid financial ground. For example, the company noted that it has borrowed $495 million under its $1.05 billion credit facility. If oil stays in the low-to-mid $50s for the rest of the year, the company said it could generate enough excess cash to pay that outstanding debt down to a range of $450 million to $475 million. However, the concern the market seems to have this week is that if crude prices keep falling, Denbury will generate less excess cash for debt reduction, and would remain in a tight financial state for even longer.

Now what

Denbury Resources' weak financial position means its share price will continue to react sharply when oil prices change directions. Because of that, it isn't an oil stock for the faint of heart.

Matthew DiLallo owns shares of Denbury Resources. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.