What: Shares of Seadrill (NYSE:SDRL) are getting a hefty boost from oil prices today. The near 5% increase in Brent crude prices has sent shares of Seadrill up as high as 10% in trading today.
So what: A confluence of factors seems to be boosting oil prices. Lower supply forecasts from the U.S., rumors that Russia and Saudi Arabia are talking about the possibility of supporting crude prices, and a weakening dollar are all boosting the benchmark prices for crude around the world.
To be clear, this has no direct impact on Seadrill's business. Shares may be headed up by some degree because it is held in various ETFs that track oil and the energy sector, but the reason that Seadrill shareholders are likely excited about rising oil prices is that it increases the chances of getting contracts for its rigs. Until new contracts are indeed added to Seadrill's contract backlog, these oil price movements are simply a distraction.
Now what: Seadrill's price movement today needs a police officer standing in front of it saying, "Nothing to see here, folks. Move along." While it's encouraging to see oil prices increase, we have seen this story play out before with oil prices. An OPEC official says something poignant, some new U.S. energy industry data show up on the same day, and prices soar. For Seadrill and other offshore rig companies, it doesn't really matter that much unless there are contracts to drill.
Until we see something from the company related to new contracts, or a method to further push its newbuild obligations further into the future, then the investment thesis for Seadrill pretty much stays the same as it has been for the past several months.
The Motley Fool recommends 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.