Oil prices took a breather this week after rising in each of the past four weeks. During this time, they were pushed up more than 20% from the most recent bottom.
This week, however, the U.S. oil benchmark price, WTI, slipped more than 4%, to close below $50 a barrel, while the global benchmark, Brent, slid about 2%, to finish over $55 a barrel. One of the issues impacting oil prices in the U.S. was the impending landfall of Tropical Storm Nate, which forced oil producers in the Gulf of Mexico to shut down about 15% of the region's production, while several refineries along the coast closed in precaution.
The Nate-related decline in oil prices caused oil stocks to fall across the sector. That said, niche service providers bore the brunt of the impact, according to data from S&P Global Market Intelligence.
Leading the decliners was proppant-maker CARBO Ceramics (CRR), which sank nearly 14% this week. The company has been under tremendous pressure due to the drop in oil over the past few years, which has curbed demand for its products. While CARBO experienced a significant uptick in sales last quarter, CEO Gary Kolstad noted that the "commodity price environment remains tenuous in the oil and gas industry."
Kolstad said he was "optimistic" about CARBO's oilfield business in the second half of 2017, but oil needs to stay above $50 a barrel so customers don't cut spending any further. Given the dip below that price level this week, investors likely bailed just in case crude has more downside ahead.
Meanwhile, drilling contractor Precision Drilling (PDS -0.34%) slumped nearly 11% this week. Driving that sell-off were many of the same concerns that pushed down CARBO -- which is that $50 oil seems to be the pivot point for shale drillers. With crude dipping below that level this week, it amps up concerns that drillers might lay down more rigs later this year. If that were to happen, Precision Drilling's utilization and dayrates could start to reverse, which would cut into its bottom line.
Helix Energy Solutions (HLX -3.87%) also slipped this week, falling about 10%. Like both CARBO and Precision, the primary driver of Helix's decline was a concern that slumping oil prices could impact its business later this year. That could slow down the recovery in Helix's financial results, which enjoyed a big bounce back last quarter after revenue jumped 40% and its net loss narrowed, thanks to a strong quarter for the company's well-intervention business.
However, with crude cooling off this week, investors decided to take some profits following Helix' 50% run-up since June, just in case the company doesn't report quite as robust results in future quarters should oil get stuck below $50 a barrel.
CARBO Ceramics, Precision Drilling, and Helix Energy Solutions are smaller niche providers of products and services to the oil industry. Because of that, this trio has greater leverage to oil prices and will, therefore, be more volatile when crude makes a move. Given that heightened volatility, investors who don't have an iron stomach and an unabashedly bullish view on oil should steer clear of this trio and consider top-tier oil stocks instead.