Shares offshore-focused energy services company Transocean (NYSE:RIG) rose nearly 50% in early trading on Nov. 24. Although the stock didn't hold those gains for long, it was still up 16% or so at 10:30 a.m. EST. Oil prices were higher at the start of trading, but not by enough to justify the massive early price move.
Indeed, the story here is much more complicated than just energy prices. For starters, Transocean's top and bottom lines aren't directly impacted by the vagaries of oil and natural gas. Its customers are the ones whose revenues and earnings rise and fall along with the energy market. However, demand for Transocean's services generally picks up when oil is expensive and falls when oil is cheap. So rising oil prices will, eventually, flow through to increased demand here. Oil was higher in early trading today. But, in the near term, the ups and downs of energy prices really aren't that important.
The bigger issue is investor perception. And the three coronavirus vaccines that appear to be successfully passing through the clearance process have Wall Street in an upbeat mood. Basically, there's increasing hope that the world will get past COVID-19 and return to a normal level of economic activity. That would mean more demand for energy and a resolution of the current supply/demand imbalance left behind from the economic shutdowns used to slow the spread of the coronavirus. Why Transocean's stock is moving so much is really a function of the company's modest size and low stock price. Essentially, it doesn't take much of a price move to create a huge percentage change here.
But don't get too caught up in these swift ups and, at times, downs. Investor sentiment is mercurial and can be driven by things that aren't material. For example, there was also news that additional funds had been released from the Deepwater Horizon settlement fund, which might have drawn investor attention even though it really wouldn't be that big a deal at this point. All of this highlights the inherent volatility in the energy sector today. In fact, the only thing you can really count on from here with any certainty is more of the same volatility.