Why Penn Virginia, Continental Resources, and Marathon Oil All Took a

What happened

Shares of U.S.-focused energy and exploration company Penn Virginia Corporation (NASDAQ:PVAC) fell as much as 16% on June 9. Fellow onshore drillers Continental Resources (NYSE:CLR) and Marathon Oil Corporation (NYSE:MRO) fell roughly 13.5% and 11%, respectively, at their lowest points. By roughly 3 p.m. EDT, the trio had clawed back some of those losses, but still remained materially lower on the day, with Continental and Marathon down around 10% and Penn Virginia off by about 15%. 

That comes after a series of big days, notably on June 8. Indeed, over the past five days, Penn Virginia was up 37%, Continental Resources 33%, and Marathon Oil 30%. Clearly, investors’ moods went from positive to negative overnight. That’s largely related to big-picture issues facing oil stocks today.

Image source: Getty Images.

So what

Oil prices fell hard earlier in 2020, as a combination of unfortunate factors pushed prices temporarily below zero. In theory, that means that oil drillers were paying customers to take the oil they had drilled. That was a pretty historic event, and it freaked the market out. Part of the reason this came to pass, however, was the long-running growth trend in onshore U.S. production, something in which Penn Virginia, Continental, and Marathon all played a part. That sets an important stage, because increasing supply of U.S. oil upended the global supply/demand balance.

OPEC attempted to offset the increase in supply by cutting its output. U.S. drillers, all acting independently with no central body controlling them, simply stepped into the void and offset any slack that OPEC created. That led to a rift between OPEC and partner Russia that resulted in even more supply hitting the market, further exacerbating the existing problems. 

At roughly the same time, COVID-19 started to spread around the globe. Economies were effectively shut down to slow the spread of the coronavirus, leading to drastically falling demand for oil and natural gas. So there was more supply right when demand was plummeting, and prices fell sharply as oil started to pile up in storage tanks around the world.

However, things have started to get better. For starters, OPEC and Russia mended their relationship and have agreed to cuts. Over the just-ended weekend, they extended the curbs again. That will help reduce supply. U.S. drillers started to pull back on drilling efforts and even began to shut active wells, further curtailing the amount of oil floating around. And countries around the world have been reopening their economies, which should help increase demand. Oil prices have risen off their historic lows, with West Texas Intermediate oil climbing into the $40 per barrel range. Investors lifted exploration and production names along with the price of oil and the flow of relatively positive news.

On June 7, meanwhile, a Wall Street Journal article noted that…