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What happened

As oil prices hit their highest highs earlier this morning, shares of Plug Power (NASDAQ:PLUG) stock — a maker of hydrogen fuel cells that act as an alternative, renewable power source to oil — initially jumped along with oil futures, rising as much as 3.5%.

Later in the day, however, worries began to emerge on the oil market, and those worries spread to Plug Power. Shares gave back nearly all their gains around noon, and are up less than 1% as of 1:30 p.m. EDT.

Image source: Getty Images.

So what

So what exactly is going on in the oil market, and what does it have to do with Plug?  

Here’s the problem in a nutshell: Over the past month, oil prices have surged from under $70 a barrel and appeared to be making a run in the direction of $80 as feuding among the OPEC+ members over when to increase oil production, and by how much, created the prospect that production would not increase as much as expected, resulting in even higher oil prices in the future. Because higher oil prices allow oil alternatives to raise prices as well, that would be good news for a company like Plug.

But here’s the thing: The continued failure of OPEC, and allied oil producing nations such as Russia, to come to agreement on future production plans is now threatening to potentially “break up the alliance,” reports (and others). And if that should happen, then the major organization that has helped to ensure high prices for oil decades could cease to perform its primary function, allowing both the price of oil, and the prices of alternatives to oil, to fall.  

And that might be bad news for Plug.

Now what

How big of a risk is this for investors in Plug Power, really?

Personally, I think OilPrice’s suggestion that OPEC is about to fall apart and disappear as an organization sounds a bit Chicken Little. While there’s certainly some arguing going on within the organization, that’s hardly unprecedented, and the sky is not really falling. To the contrary, when all’s said and done, the members will eventually come to an agreement on their oil production plans — just as they always have.

That being said, it’s likely that when this agreement is reached, it will cause oil production quotas to increase, and this will bring the price of oil back down a bit — even in the face of increased demand as the pandemic winds down. Granted, that’s not great news for Plug stock, either, which would do better in an environment of higher oil prices rather than lower. But the chance of OPEC falling apart on a single production quota dispute this month, and of that sending oil prices into free fall?

I consider that highly unlikely.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.