Chesapeake Energy (CHK) Stock Gains As OPEC Flexes

Chesapeake Energy Corporation CHK Stock News

Chesapeake Energy Corporation (NYSE: CHK) is trading on gains of more than 6% early on in Thursday’s trading session. A quick search for press releases and SEC filings turned up nothing. So, what’s the deal?

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The oil industry is an interesting one, with many suggesting that OPEC has lost its ability to combat falling oil prices. Nonetheless, OPEC is now flexing its muscles as it heads closer and closer to a key meeting that could lead to more supply tightening. CHK will benefit greatly as the price of oil climbs if OPEC makes the right moves. Here’s what’s happening:

OPEC Flexes Sending CHK Stock Up

Chesapeake Energy is benefiting as all eyes are starting to turn toward OPEC. The global oil cartel has been under pressure to show that it is able to reverse the slide in oil prices as OPEC struggles to bring value to oil futures.

Moreover, pressure from Trump as trades continue to follow their tweets leads to further skepticism. In fact, Helima Croft, global head of commodity strategy suggested that it will be easier for OPEC to clean up the physical market than to overcome such skepticism.

Unfortunately for OPEC, supply restraints and losses in both Iran and Venezuela have led to the cartel controlling the smallest share of the crude market that it has controlled in years. At the same time, the United States continues to increase production and has now made it to become the world’s largest producer of the black gold that is crude oil.

Nonetheless, CHK investors and investors in other energy companies are looking for OPEC to flex its muscles, and expect that this will happen soon. In fact, OPEC and non-OPEC partners will meet next week in Abu Dhabi. The meeting will surround the progress associated with stabilizing global oil markets.

Experts believe that OPEC will reaffirm its commitment to rebalancing the market. Moreover, expectations are that Saudi Arabia, the kingpin of OPEC will double down on its efforts.

At the beginning of 2019, OPEC and non-OPEC partners agreed to reduce output by 1.2 million barrels per day in the beginning of 2019. Many believe that the meeting next week will result in either an extension of these production cuts or further production cuts.

Of course, if this takes place, global supply would likely see declines, leading to gains in the value of oil. Because CHK is centered in the oil industry, that’s great for the stock.

Anything Can Happen

While the resounding belief is that OPEC will double down on its efforts to rebalance the market, the truth of the matter is that anything can happen, and with Trump putting pressure on global players, a message could be sent.

As OPEC continues to tighten supply, production growth in the United States continues to threaten the cartel’s leadership and ability to control the industry. President Trump touts this as a “HUGE” success for the United States, but this isn’t a cut and dry topic.

Sure, increasing production means that more money either comes in or stays in the United States. But, it also means that the US is curbing OPECs efforts, a figurative slap in the face from Trump to OPEC. OPEC could respond by taking an “if the world doesn’t try, why should we” approach.

While chances of this are slim, and I don’t believe it will happen, the truth of the matter is that in the Trump era, there’s only one thing that’s certain, uncertainty! Should OPEC take this approach, CHK and other equities in the oil and energy industry could feel serious pain. So, watch this meeting closely.

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