Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of offshore driller Seadrill (NYSE:SDRL) dropped as much as 10% today as oil prices continue to fall in the U.S.
So what: A few factors are hitting oil, and by extension Seadrill stock, today. Supply disruptions in Libya aren't expected to be as big as some had figured, Europe's economy is in question once again as Greece heads toward a surprise election later this month, and the dollar is rising versus a beaten-down euro. Add all these factors up, and oil has fallen 5% while contracts for West Texas Intermediate crude dipped below the $50 mark for the first time since April 2009.
Now what: Shares of Seadrill are down nearly 75% from their 52-week high last year, and with oil falling the pressure hasn't stopped in 2015. In the short term, the drop in oil prices won't have much impact on earnings because 91% of the company's operating days in 2015 are under contract. But if oil stays near $50 throughout the year, oil companies could eventually cut back on spending.
I think the oversupply of oil will subside sometime this year, but betting on Seadrill's stock is a big risk because forces outside of management's control will determine the level of demand for oil rigs over the next few years.
Travis Hoium manages an account that owns shares of Seadrill. The Motley Fool recommends Seadrill. The Motley Fool owns shares of Seadrill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.