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: The price of crude oil is making another big move today and that's taking oil stocks on another wild ride. By late afternoon crude oil was down over 8.5% to $48.50 per barrel, which was enough to send the stock of W&T Offshore (NYSE:WTI) off even further as it's down about 14%. That drop has it giving back most of yesterday's gains.
So What: W&T Offshore is highly levered to the price of crude oil because 62% of its reserves are either oil or liquids. However, that isn't the only kind of leverage that W&T Offshore has. Its balance sheet is heavy on the debt side as the company has one of the highest net debt-to-capital ratios in the industry. Suffice it to say, this leverage cuts both ways as the debt has acted like a weight as the price of crude has collapsed over the past few months. Overall, the 55% plunge in crude has taken W&T Offshore's stock down 72% from its 52-week high.
Now What: Because of its debt load and focus on oil W&T Offshore is going to be very volatile when the price of crude makes a big move. Looking ahead, the company, and industry as a whole, really needs higher oil prices in order to thrive again. Until that happens investors need to get used to the fact that oil-focused companies with a lot of debt will be hyper-volatile when crude is on the move.
Matt DiLallo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.