What happened
Shares of U.S. exploration and production company Centennial Resource Development (PR -2.05%) opened to the downside today, dropping as much as 5.5% in the first few minutes of trading. The stock's decline was likely driven by investor concerns over the OPEC meeting that is taking place.
So what
Centennial is a small and heavily leveraged U.S. energy company. Its stock has been quite volatile of late, rising and falling in dramatic fashion based on investor sentiment. At times there's real news backing a price gain or downdraft, and at times the stock moves for seemingly no reason at all. Today, however, investors appear concerned about OPEC.
Image source: Getty Images.
The group had an informal meeting over the weekend to discuss extending output cuts that are currently in place. The cuts have helped, to some degree, with the supply/demand imbalance caused by the economic shutdowns being used to slow the spread of the coronavirus. That said, this is not an easy decision.
Oil prices have firmed lately as demand for energy has improved, but the world is seeing an uptick in COVID-19 cases, which could be bad for energy demand. Last week the expectation was that OPEC would extend its cuts, but the weekend meetings don't appear to have resulted in that coming to fruition. And now investors seem to be fearing that OPEC will announce that it will start increasing production after the formal meetings now taking place. Thus, investors are selling Centennial Resource Development shares, since increased production would likely mean a drop in energy prices and that would make it harder for the driller to muddle through this industry downturn.
Now what
One day does not make a trend and you shouldn't read too much into the price action of Centennial Resource Development today. However, there is one thing you can be fairly sure of: the volatility in this relatively tiny driller's stock is going to continue. In fact, these shares are likely to remain volatile long after the OPEC decision is announced, for better or worse. Only aggressive investors should be investing here.
