Shares of W&T Offshore Gain 10% Today -- Here's Why

By Tyler Crowe Markets Fool.com

Image source: Getty Images.

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What happened

It's been a white-knuckle ride lately for shares of W&T Offshore (NYSE: WTI). As of 10:15 a.m. EST Monday, shares of the company are up 10% as oil prices continue to make gains following last week's news of an OPEC production cut deal.

So what

Consider this for a second. Since the announcement that OPEC was going to cut production to help support oil prices, shares of W&T Offshore have gained more than 25%. The reason that this stock has reacted with so much volatility is because, frankly, the company needed higher oil prices to survive. According to the company's most recent earnings report, W&T's operations have been burning through cash and generating heavy losses while realizing oil prices around $35 per barrel and taking on a mountainous debt load in the process.

With benchmark prices now above $50 a barrel -- W&T's price realization is typically lower because of pipeline costs from its offshore production platforms -- the thinking is that the company will start to generate operational cash, hopefully start paying down that debt, and start to generate profits for investors.

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Now what

As much as higher prices will help W&T, prices would have to be high for a long time before any kind of balance sheet integrity is restored. The fall has been long and hard for this company, and even these double-digit gains are small blips in the slide this stock has suffered over the past few years.

WTI data by YCharts.

For investors who are indeed interested in netting long-term gains from the oil industry's recovery, there are much-better ways to do it with better-financed companies that are likely to generate returns over the long haul. There are just too many questions around W&T to make it a sound long-term investment.

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Tyler Crowe has no position in any stocks mentioned.You can follow himat Fool.comor on Twitter@TylerCroweFool.

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