What happened

Oil stocks surged hard when trading opened on June 16 on some positive economic news. Consumer retail spending was up 18% in May as many parts of the U.S. opened back up for business. This sparked a surge across the entire stock market, but few sectors saw the boost more than oil producers, with many of the top names surging by double digits in morning trading. 

But as the hours passed, that early exuberance softened. Here are how nine of the biggest movers are doing as of 3:49 p.m. EDT:

Oil producer stock Price change on 6/16/20
ConocoPhillips (NYSE:COP) 3.6%
Callon Petroleum Company (NYSE:CPE) 6.6%
Oasis Petroleum Inc. (NYSE:OAS) 4.3%
Kosmos Energy Ltd. (NYSE:KOS) 7.3%
Ovintiv Inc. (NYSE:OVV) 5.3%
Cenovus Energy Inc. (NYSE:CVE) 5.2%
Occidental Petroleum Corporation (NYSE:OXY) 5.9%
Baytex Energy Corp. (OTC:BTEG.F) 0.75%
Apache Corporation (NASDAQ:APA) 2.7%

Source: YCharts. 

So what

The U.S. Department of Commerce reported some positive news today, announcing that retail sales increased 17.7% in May from April. This was viewed as incredibly positive for the economy, supporting the idea that things will recover quickly from the coronavirus lockdown. This was the largest month-to-month increase since the federal government started measuring retail data.  

Oil worker on a pumpjack.

Image source: Getty Images.

As a result, stocks surged early on the day, and the SPDR S&P 500 ETF Trust (NYSEMKT:SPY), which follows the broader S&P 500 of companies, was up more than 2% for much of the day. Yet like many oil stocks, the broader market index has given back some of its earlier gains and is on track to close up about 1.6%. 

The reason for the moderating of the earlier run-up? In short, COVID-19 is playing a big role. Ace Federal Reserve Chairman Jerome Powell said in a Senate hearing today, "Until the public is confident that the disease is contained, a full recovery is unlikely." 

Now what

Oil demand and oil prices have improved over the past month, but U.S. crude futures are still below $40 per barrel, and global oil demand is still down by double digits from 2019 levels. A protracted period of economic weakness will continue to weigh on the industry, which remains in dire straights even after record production cuts by OPEC+ producers and a massive decline in output from U.S. producers, who have reduced drilling activity by more than two-thirds this year. 

The worst may be past for the industry as a whole, but plenty of individual oil producers have a very hard path forward. Prices are still below breakeven levels for many U.S. and Canadian producers, and barring a recovery in demand that pushes prices higher, there will be more bankruptcies in the sector. This very real risk is why many oil producer stocks are still well down this year: 

SPY Chart

SPY data by YCharts

Eventually the oil sector will fully recover. But between now and then, there will be more casualties, and independent oil producers remain one of the higher-risk sub-sectors to invest in. Keep this in mind before investing in this sub-sector: We know the current environment is untenable for most producers, but we don't know when prices and demand will return to profitable levels. The risk is in each company's ability to survive to the recovery. 

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.