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Why Centennial Resource Development Stock Fell 5.5% at the Open Today

By Reuben Gregg Brewer - Nov 30, 2020 at 10:17AM

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The small U.S. energy driller is getting hit by investor sentiment again as a major oil industry decision looms.

What happened

Shares of U.S. exploration and production company Centennial Resource Development ( CDEV -4.37% ) 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. 

A man with a notebook in front of oil well.

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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Centennial Resource Development, Inc. Stock Quote
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