What happened

Energy stocks had a rough day on Monday. Not only did oil and gas prices decline, but several other issues also weighed on the shares of producers, with several falling more than 10% by 2:30 p.m. EST.

Leading the downdraft were Antero Resources (NYSE:AR), Gulfport Energy (NASDAQ:GPOR), Range Resources (NYSE:RRC), Callon Petroleum (NYSE:CPE), and Carrizo Oil & Gas (NASDAQ:CRZO).

So what

Crude prices pulled back on Monday, with the U.S. oil benchmark, WTI, slipping about 2% and closing below $57 a barrel. The main issue seems to be some waning optimism about whether the U.S. and China will ever sign the first phase of their trade deal. Lower crude prices will affect the cash flows of oil-focused producers like Callon Petroleum and Carrizo Oil & Gas, which is one reason their shares plunged today.

An oil pump at sunrise

Image source: Getty Images.

Adding to the weight on those two oil stocks was news that key Callon Petroleum shareholder Paulson & Co. will no longer oppose that company's proposed merger with Carrizo Oil & Gas. That follows Callon's decision last week to lower its bid for Carrizo down to a 6.7% premium to its price before announcing the deal. It initially offered a 25% premium, which Paulson and others thought was too high. That increases the likelihood of the hotly contested deal winning approval, which still might not pay off for investors in the long run, given the continued volatility in the oil market.

Meanwhile, the price of natural gas fell more than 4% on the day due to concerns that winter temperatures will begin rising next week. Since natural gas is a key heating fuel, higher temperatures will lessen demand. That issue weighed heavily on shares of gas-focused producers Antero Resources, Gulfport Energy, and Range Resources since lower prices will negatively affect their profitability.

Gulfport Energy is under additional pressure today after announcing several steps to improve its profitability amid weaker commodity prices. First, the company suspended its share repurchase program so it can focus on reducing debt. Gulfport noted that it recently bought back $40.9 million in face value of its bonds for $29.2 million, and it planned to continue repurchasing its debt at a discount. In addition to that, it announced a 13% workforce reduction to trim costs. These moves should help improve the company's financial position, which is worrisome given the weakness in oil and gas prices. That was evident in a recent analyst's downgrade, which came as a result of Gulfport's elevated debt level.

Now what

Smaller oil and gas producers such as Antero, Range, Gulfport, Callon, and Carrizo tend to make big moves when commodity prices slump, which was the case today. A bit of disappointing news can make matters even worse. That volatility is why investors would probably be better off avoiding smaller oil and gas producers and instead consider buying stocks in companies with less direct exposure to commodity prices.