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Could Crude Oil Prices Give Chesapeake Stock a Much-Needed Boost?

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Dec. 4 2020, Updated 10:51 a.m. ET

Chesapeake Energy’s stock movements

Chesapeake Energy (CHK) stock has been choppy in the last few weeks, and its stock has been following the movements in energy prices (USO) (DBO) (UNG) (UGAZ).

Since the beginning of 2017, CHK stock has fallen 28%. Meanwhile, crude oil prices have declined ~4% during the same period, recovering from their losses from the beginning of the year. Natural gas prices have dropped 15.3% in the same period.

As we can see in the graph above, Chesapeake Energy has underperformed energy prices as well as the energy sector at large. The Energy Select Sector SPDR ETF (XLE) has declined 12.5% since the start of 2017.

Both the energy sector and energy prices have underperformed the broader market. The graph above notes that the SPDR S&P 500 ETF (SPY) has risen ~9.6% since the beginning of 2017.

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Could crude oil prices lift CHK stock?

Given the recent rally we’ve seen for crude oil prices, CHK investors could have a reason to be optimistic. Crude oil prices closed over $50 per barrel on Monday, July 31, 2017, for the first time in two months. The increase was supported by a decline in inventories and waning supply concerns.

Crude oil prices also found support from the scheduled OPEC and non-OPEC members’ meeting in Abu Dhabi next week, which will address increased compliance with supply cuts.

Given how CHK has been focusing on oil-focused growth, crude oil prices should be a key driver for its growth in 2017.

However, some risk-averse investors may be wary about the company’s debt levels. CHK’s debt was $9.0 billion at the end of 1Q17. For context, CHK’s market cap is $4.4 billion.

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