Please ensure Javascript is enabled for purposes of website accessibility

Oil Slumps Nearly 5%, Taking Oil Stocks With It (ESV, ORIG, EPE, TDW, NBR)

By Matthew DiLallo - Jul 5, 2016 at 4:28PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Sliding crude prices caused double-digit losses in ENSCO, Ocean Rig, EP Energy, Tidewater, and Nabors Industries.

Image source: Getty Images.

What: Oil slumped on Tuesday, closing down 4.9% to around $46.50 a barrel. That sell-off in the oil market weighed heavily on oil stocks, with ENSCO (VAL), Ocean Rig (ORIG), EP Energy (EPE), Tidewater (TDW), and Nabors Industries (NBR 4.38%) all down double digits by the mid-afternoon.

So what: A return of Brexit worries was the primary weight driving crude prices lower on Tuesday. Oil initially sold off sharply following Britain's vote to exit the EU because of concerns that the change would lead to weaker oil demand. However, those concerns quickly faded, causing crude to rebound sharply last week. Today those initial fears returned and were mixed in with new worries that U.S. oil production could potentially rebound more quickly than expected.

With crude selling off, it weighed on the entire sector. Deepwater drillers ENSCO and Ocean Rig slumped because of concerns that rising supplies and weaker demand will delay the need for new deepwater wells. That same worry also weighed on offshore service vessel provider Tidewater. Meanwhile, low oil prices continue to hit EP Energy because its debt-heavy balance sheet is holding back its ability to grow production. Further, with producers like EP Energy unable to restart production growth because of slumping oil prices, it implies a weaker outlook for oil-field service company Nabors Industries. In other words, with crude slumping, it's causing investors to rethink their view on the entire sector. 

Now what: After an epic 85% rally off the bottom, oil seems to be catching its breath. Oil market traders are paying closer attention to downside risk and are selling at any hint of trouble. This is creating volatility in the price of crude, which is spilling over into oil stocks. This near-term volatility is likely to persist until there's clear and compelling data showing that oil market fundamentals aren't starting to deteriorate. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Valaris plc Stock Quote
Valaris plc
VAL
Tidewater Inc. Stock Quote
Tidewater Inc.
TDW
Nabors Industries Ltd. Stock Quote
Nabors Industries Ltd.
NBR
$139.03 (4.38%) $5.84
Ocean Rig UDW Stock Quote
Ocean Rig UDW
ORIG
Enterprise ETE LLC Stock Quote
Enterprise ETE LLC
EPE

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
345%
 
S&P 500 Returns
119%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/17/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.