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Why Transocean's Stock Surged 37% in June

By Matthew DiLallo – Jul 6, 2020 at 10:20AM

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The offshore driller enjoyed a bounce-back month.

What happened

Shares of Transocean (RIG 3.45%) rebounded 37.6% in June, according to data provided by S&P Global Market Intelligence. Fueling the offshore drilling stock's rebound was big news in the oil market last month. 

So what

Shares of most oil stocks, including Transocean, skyrocketed in early June, with its shares more than doubling at one point after OPEC extended its historic production reduction agreement through the end of July. That news helped push oil prices higher for the month, buoying Transocean's stock. While the company doesn't produce oil, it stands to benefit from higher oil prices since that would give its customers more confidence to drill new offshore oil wells. 

An offshore rig at dusk.

Image source: Getty Images.

While Transocean's stock started June off with a bang, it gave up a large portion of its initial gains as the month wore on. Shares tumbled on several occasions, as new oil market worries emerged, including rising oil inventory data and a spike in COVID-19 cases. 

Another factor weighing more specifically on Transocean was an analyst downgrade. Clarksons Platou cut its rating on the stock from "buy" to "neutral" last month, while setting its price target at $2.40 per share. One concern that analysts have is the weak financial profile of the offshore drilling sector. One company has already gone bankrupt while several others are at the brink. If more offshore drillers file, the wave might eventually overtake Transocean.

Now what

Transocean took its investors on a wild ride last month. While shares rebounded sharply for the month, they did give back a significant portion of their initial gains as optimism began to fade. Given the troubles in the offshore drilling sector, and Transocean's large debt load, there's heightened risk that it might eventually file for bankruptcy, which is why investors should steer clear of the stock.

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

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