What: Lately, the energy sector seems to be playing out a scene from a movie, except its one-part Groundhog Day, and another part from some apocalyptic thriller. It's the same story day after day, with crude oil continuing its seemingly endless slide into the abyss. Today's slide sent a myriad of energy stocks down, with Nabors Industries (NYSE:NBR), CARBO Ceramics (NYSE:CRR), Enbridge Energy Partners (NYSE:EEP), and MPLX (NYSE:MPLX) enduring some of the steepest sell-offs by late afternoon.
So what: Today, crude was down by nearly 6%, to just less than $27 a barrel, which is its lowest price since 2003. That's hurting not just oil producers, but companies related to the sector.
MLPs, like Enbridge Energy Partners and MPLX, in particular, have been hit hard in recent months in spite of their limited direct exposure to commodity prices. Instead, the market worried about other things, such as counterparty risk, distribution sustainability, capital availability, and credit quality. In other words, investors are in a sell-first-ask-questions-later phase.
Meanwhile, service companies like Nabors Industries are being affected by the significant slowdown in the need for oil-field services, as well as a nowhere-in-sight recovery. Product makers like CARBO Ceramics also are seeing a big reduction in demand, with no recovery in sight. That's one reason why the company announced today that it would suspend its dividend for the foreseeable future, so that it can preserve cash. The overarching concern is that the lower oil prices go, the weaker demand will be, not just in the near term, but when prices slowly rebound.
Now what: The sell-off in energy stocks won't stop until crude oil begins to recover, because that's what's needed to wipe away some of the worries facing energy companies. There's no telling when that will happen, so investors need to be prepared for more volatility in the interim.