Thanks to their inherent volatility, speculative oil companies almost always produce interesting headlines, to say the least. But within this sector, nothing has generated as much attention recently as Chesapeake Energy (NYSE:CHK). A deeply troubled name following the last energy market crisis, the CHK stock price tumbled below $1 last November.
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As any reasonable person would suggest, I urged extreme caution on Chesapeake Energy stock. Using a football analogy, I likened shares to a fourth-and-forever situation. Not only that, time was the enemy, with the game on the line and the team down on points. But thanks to a complicated debt-financing deal, the situation transitioned to fourth-and-long.
Granted, that is an improvement. More importantly, the energy firm bought itself some time. However, it’s not a ringing endorsement of Chesapeake Energy stock by a long shot.
Nevertheless, following my article’s publication date, shares bounced higher (because of course it did). Apparently, several investors thought the pros outweighed the cons. That said, rational thinking reentered the space and the CHK stock price came back down to earth.
In fact, at time of writing, we’re back at square one relative to my last CHK story. Naturally, this raises the question: will Chesapeake Energy stock rise higher once more on speculative interest or was the previous rally a dead-cat bounce?
Fundamentally, I don’t see anything about the company that has changed: management is doing what it can to tread water. However, in my previous write-up, I did mention that other factors must come into play to make CHK stock credible. And the recent conflict between the U.S. and Iran may provide the platform for the extreme bullish gamble.
Middle Eastern Conflict a Possible Catalyst for CHK Stock
As you’re well aware, U.S. military forces killed Iranian general Qassem Soleimani. According to President Donald Trump, Soleimani was planning to attack the U.S. embassy in Iraq. If so, it was a justified preemptive attack. Unsurprisingly, Iran wasn’t happy about losing their top military officer.
In response, Iran launched missiles at an Iraqi base housing American service members. Optically, it looked like an act of war, with many fearing the worst. But in the aftermath, Trump revealed that neither U.S. nor Iraqi forces suffered casualties. Because of remarkably muted response, the president decided against a military response.
So, all is well, using the commander in chief’s words. However, I believe the markets are badly underestimating Iran’s anger and resolve. Should they strike back with a more painful response, oil prices will surely rise. Iran is one of the world’s top oil producers. Furthermore, experts estimate that their oil reserves may last 90 years or longer.
Cynically, taking this nation out of the equation will benefit the CHK stock price.
But just how likely is it that Iran will seek a deadly response? Based on rapidly devolving events, I’d say quite likely.
Shortly after Iranian forces launched their missiles, a Ukrainian airliner carrying many Canadian passengers crashed. Initially, conspiracy websites declared that a missile took down the plane. But later, Canadian Prime Minister Justin Trudeau confirmed the shocking accusation.
Two major points stand out. First, Iran immediately lost sympathy from the international community. Second, this matter will pressure already frayed relations between the U.S. and Canada. And going back to Iran, the country looks incredibly incompetent.
Having lost so much face and with Trump imposing new economic sanctions, Iran has its back against the wall. I’d be surprised if they didn’t respond. That’s the cynical tailwind for CHK stock.
Still a Toxic Investment
Now, before you go diving into Chesapeake Energy stock, a word of caution: this “investment” still stinks.
Irrespective of what happens in the Middle East, the core nature of the company remains the same. Presently, it has an unsustainable debt level. While it bought itself some time, it’s got to do something with it. Both history and the forward outlook doesn’t augur well.
That said, the Iranian situation is a contrarian catalyst because a) it’s important and b) not too many people seem to respect it. Should Iran’s supply be compromised or if Iran compromises other nations’ oil supplies, the oil bull market could reemerge vigorously.
But can CHK stock stay afloat long enough to advantage this possible development? I can see why some gamblers are intrigued. But with so many variables, anyone that doesn’t have “stupid money” to play with should avoid Chesapeake Energy.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
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