Why Shares of Energy XXI Ltd Plunged 10% Today

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of oil and gas producer Energy XXI Ltd fell as much as 10% today after the price of oil fell.

So what:West Texas Intermediate crude oil was down 2.7% to $48.64 per barrel today, adding to questions about whether or not the price of oil will be high enough for a company like Energy XXI to survive long term. To make matters worse, The Wall Street Journal highlighted Energy XXI as one of the companies who recently sold debt that's rated as junk to stave off bankruptcy.

Now what: There are a lot of questions about when and if oil prices will rise and many oil producers need a higher price just to survive. It's a bad sign that at least two oil companies in Houston announced they have filed for bankruptcy this week. More will likely follow if oil doesn't increase in a meaningful way soon.

I wouldn't use this as a buying sign because I don't think we're in for higher oil prices until more U.S. shale supply folds under price pressure. The industry is oversupplied and inventory is rising, which is a bad sign for all energy producers, especially Energy XXI.

The article Why Shares of Energy XXI Ltd Plunged 10% Today originally appeared on Fool.com.

Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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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