What happened
Shares of U.S. onshore exploration and production company Centennial Resource Development (CDEV +0.73%) fell a little more than 13% when trading began on Dec. 21. Although the stock quickly gained back some of that loss, it was still off by roughly 9% at 10 a.m. EST.
So what
The development and approval of effective coronavirus vaccines helped to turn the energy sector higher in recent weeks. Oil prices reached levels not seen since the first quarter of 2020, before the pandemic had really started to hit the markets, showing just how positive investors had become on vaccine-related news. That makes some sense, since demand would presumably recover once a vaccine is distributed widely enough to have an impact on the trajectory of the pandemic.
Image source: Getty Images.
Over the last couple of days, however, the United Kingdom has revealed that it is dealing with a new strain of the coronavirus. It seems to spread more easily than older strains and has resulted in countries enacting travel bans with regard to the U.K. That's not good news for oil markets, especially if it ends up being a harbinger of deeper economic shutdowns. Oil prices fell, as investors seemed to think that return to normal might be pushed further into the future. Centennial Resource Development fell along with commodity prices.
Now what
Centennial Resource Development is a small and heavily leveraged driller. Sustainably higher oil and natural gas prices will materially improve its chances of muddling through the current industry downturn. And, as such, investors can expect the stock's price to rise and fall along with the prices of the energy commodities it produces. Today's price volatility is just par for the course at this point. Most investors looking at the energy sector for bargains would likely be better off sticking to larger and financially stronger companies like Chevron.
