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Why Offshore Drilling Stocks Rose 7%–11% Yesterday

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Oil prices and inventories

Yesterday, US crude oil surged 3.2% to close at $72.76 per barrel—the highest level since November 2014. Oil prices rose after a significant drop in US crude oil supplies. On Wednesday, the Energy Information Administration reported that crude supplies declined by 9.9 million barrels for the week ending June 22. This was the largest weekly decline this year. Also, the decline was four times higher than analysts had forecast according to S&P Global Platts.

Crude oil production is also at a record high. The drawdown in inventory suggests that even the high oil production is unable to offset the strong domestic and international oil demand. Higher oil prices, strong oil demand, and large drawdowns in oil stocks bode well for the offshore drilling industry. This was the primary reason behind yesterday’s spike in stock prices. To understand the relationship between oil prices and the offshore drilling industry, read Market Realists’ Understanding the Demand Side of the Offshore Drilling Industry.

Diamond Offshore

Diamond Offshore (DO) closed at $21.22, 10.75% higher than the previous day’s closing price. The company’s trading volume was ~856,000, compared to a year-to-date trading volume average of ~425,000.

Ensco

Ensco’s (ESV) stock closed at $7.05, 8.46% higher than the previous day’s closing price. The stock’s trading volume was ~4.9 million, compared to its year-to-date trading volume average of ~3.07 million.

Transocean

Transocean’s (RIG) stock closed at $13.3, 6.4% higher than the previous day’s closing price. The stock’s trading volume was ~4.5 million, compared to its year-to-date trading volume average of ~2.8 million.

Others

Seadrill (SDRL), Rowan Companies (RDC), and Noble Corporation (NE) rose 11.2%, 7.4%, and 7.1%, respectively.

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