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: Onshore oil and gas well driller and oilfield service company Ken Energy Services Inc (NYSE: KEG) stock was up almost 10% in afternoon trading. So far this year, it is up almost 20%:
Even after todays' jump, the stock trades down 80% from last year's peak. Maybe the company should change its ticker symbol to "EKG," because its stock chart looks like a heart attack lately.
So what: There's not any news out there that's material to Key Energy Services, though West Texas Intermediate -- the benchmark price for U.S. crude -- is up more than 3%. If you take a look at this chart with the WTI daily spot price added, you'll see that Key Energy's daily price moves have correlated to moves up or down with the benchmark for oil:
Now what: The thing is, there's zero value in the long-term predictive value of this correlation. Key Energy's future is tied to oil prices in a way, since oil prices need to go up for its drilling business here in the U.S. to survive. However, there's little doubt that drilling activity in the U.S. has fallen sharply, and probably won't bounce back before the end of 2015 at the very earliest, if then.
WTI crude still trades below $55, and U.S. producers aren't going to fire up all those idled drilling rigs until prices get much higher. Until that happens, Key Energy is going to have a tough time. And while there has been correlation between the stock price and oil prices, it's probably not a good idea to gamble that oil prices will rise in the short term, or that Key Energy's stock will continue to track it.
It gets back to the saying about the market remaining irrational longer than you can stay liquid. Better to find a company with some predictability and less exposure to oil prices and drilling demand right now.
