What happened

Oil prices continued to tumble today following their historic crash earlier this week. By 12:45 p.m. EDT, WTI, the U.S. oil benchmark, had fallen more than 6% to below $31 a barrel. Weighing on oil was the continued impact of the COVID-19 pandemic, which led President Donald Trump to restrict travel between the U.S. and Europe, further denting oil demand. 

The market meltdown caused a massive sell-off in energy stocks, with nearly the entire sector tumbling more than 10% on the day. Among the notable decliners were Kinder Morgan (KMI 2.53%)Oceaneering International (OII -1.11%)Clean Energy Fuels (CLNE -2.18%)Core Labs (CLB), and TechnipFMC (FTI -0.71%)

The word oil with a red down arrow next to it.

Image source: Getty Images.

So what

Pipeline giant Kinder Morgan doesn't have much direct exposure to crude oil prices because it generates most of its income from long-term fee-based contracts. However, those agreements aren't sparing it from the indiscriminate selling in the sector. That's due in part to investors being worried that the slump in oil prices could cause a rash of bankruptcies across the energy patch, which might impact its customers' ability to pay their fees.

Offshore-focused oilfield services companies Oceaneering International, Core Labs, and TechnipFMC also don't have direct exposure to oil prices. However, with crude oil prices crashing into the low 30s, their customers will likely have no choice but to slash spending on new oil projects. Those activity reductions will have an impact on their future financial results.

That will make things even worse for those offshore services companies as they've battled against challenging industry conditions since the last oil price crash in late 2014. While the market environment had finally started getting better for these companies over the past year, they still weren't improving as quickly as they'd hoped. That sluggish recovery forced Core Labs to slash its dividend late last year. Meanwhile, the renewed weakness in the sector will likely cause these companies to report results well below their initial expectations.

Clean Energy Fuels also doesn't produce oil. Instead, the natural gas refueling company's stock is under pressure due to the overall market meltdown. Its stock, like others in the sector, continues to make wild swings due to the market malaise.   

Now what

Dual shockwaves have upended the oil market this year. Not only has the COVID-19 outbreak hammered oil demand, but OPEC has opened the spigot following the collapse of its market support agreement with Russia.

In the near term, oil prices will likely remain under pressure since it could be several months before demand picks back up. However, lower oil prices tend to spark demand, suggesting that consumption could bounce back quickly. Meanwhile, the moves by OPEC members to push down prices are already having their desired effect as several oil companies in the U.S. have slashed spending. That should enable the group to take back market share, which could potentially bring Russia back to the negotiating table. While it will eventually take time for these catalysts to play out, they suggest that the oil market could snap back in the coming months.