Friday, September 23, 2011

Chesapeake Energy Dips 8%

Chesapeake Energy closed down big at near $27.00 Thursday, while oil prices were hit hard on a dismal global outlook. The prospective global economy was affected by weak manufacturing data in Europe and China, forcing traders to seek safer assets. Light sweet crude fell to $81.41 a barrel, while the U.S. dollar rose against a basket of major currencies, potentially hurting future exports for the U.S. Very weak future guidance by the Fed, along with the announcement of the government to carry out "Operation Twist" lead investors to believe that the current economic downturn would not be going away anytime soon.
North American natural gas production has been rapidly increasing, but prices have been declining very sharply as the demand for this resource has just not been there for consumers. The price of this gas has been cut 50% from 3 years ago. This is mainly due to the discovery of new unconventional drilling methods, which have heavily increased production. Stabilizing prices in the upcoming years, along with decreased production should hopefully be able to increase demand and profits for the short term, while a push towards cleaner energy should propel the natural gas industry going forward even further. President Obama has said that natural gas has "enormous" potential as a clean energy alternative to oil. This has lead Chesapeake to increase shale drilling in Canada and in many parts of the U.S., while it is also looking for partners and investors to help with the turnover in certain gas plays. I believe that the natural gas industry going forward will be extremely beneficial to Chesapeake and I feel that they are set up very well to profit from its success.

-Cody Aguado

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