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Why Centennial Resource Development Stock Rallied 11.5% Today

By Reuben Gregg Brewer – Sep 22, 2020 at 11:08AM

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What a difference a day makes, which only highlights the very real risks energy investors face today.

What happened

Shares of U.S. exploration and production (E&P) company Centennial Resource Development (CDEV 1.63%) rose as much as 11.5% in the first hour of trading on Sept. 22. That comes just a day after the stock fell sharply. The story is basically the same, just in opposite directions.

So what

The energy sector is dealing with a huge supply/demand imbalance and oil and natural gas prices are painfully low. It's hard for energy producers to turn a profit. Centennial Resource Development is muddling through as best it can, noting that it has a material amount of leverage. That fact makes life even more difficult and leaves the stock prone to often volatile price swings as investors vacillate between fear and greed. 

A man standing in front of an oil rig with tablet in his hand

Image source: Getty Images.

News of COVID-19 making a resurgence had investors worried about demand yesterday and, thus, oil and natural gas prices fell. Centennial Resource Development's stock went along for the ride. Today oil and natural gas prices bounced back, at least a little, and the mood shifted in a positive direction for this leveraged E&P. That said, by about 10:30 a.m. EDT oil and natural gas prices had pulled back from their highs and so had Centennial Resource Development, with the stock up a more modest 7.5%.

Now what

The real takeaway here is about volatility, which is high in the energy sector today and for Centennial Resource Development's stock price. This is not a great option for investors who like to sleep well at night. The one thing you can pretty much count on from here is a high level of volatility, often driven by little more than what would otherwise be pretty mundane energy news. 

Reuben Gregg Brewer 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.

Stocks Mentioned

Centennial Resource Development, Inc. Stock Quote
Centennial Resource Development, Inc.
CDEV
$9.95 (1.63%) $0.16

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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