Here's What's Fueling Seadrill's Double-Digit Surge Today

By Markets Fool.com

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What's happening: Shares of Seadrill were up by more than 10% by midafternoon Tuesday. Fueling the stock's rise, and that of many other oil-related companies, for that matter, is the price of crude, which is rebounding after four straight down days.

Why it's happening: The price of U.S. oil benchmark WTI rebounded by more than 1% today as investors bet that data this week will show a decline in oil inventories. Such a decline would be bullish for oil prices, as it would suggest we're using more oil than is being produced. However, the data has been spotty lately, as last week inventories showed a surprising build.

There are a few reasons that rising oil prices impact Seadrill's stock price. First of all, most oil-related companies trade along with oil, so when its price heads higher, so do these stocks. This is because higher oil prices mean better profitability and growth potential industrywide. However, there is likely another factor at play here, and that's the fact that Seadrill is a heavily shorted stock, with more than 11% sold short. Because of this, when the stock begins to trade higher, short-sellers get nervous, as they need to buy the stock to close out their short positions. This tends to create a lot of buying pressure, which is also known as a short squeeze. That's most likely what's fueling today's surge in Seadrill's stock.

The article Here's What's Fueling Seadrill's Double-Digit Surge Today originally appeared on Fool.com.

Matt DiLallo owns shares of Seadrill. The Motley Fool recommends Seadrill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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