What: After surging 9% last week, crude reversed course on Monday, closing down 6%. This caused oil stocks to follow suit, with Ultra Petroleum (UPL), Nabors Industry (NBR 3.36%), Denbury Resources (DNR), California Resources (CRC), and Whiting Petroleum (WLL) all dropping by more than 10% by 2:45 p.m. EST on Monday.

So what: Ultra Petroleum was the hardest hit today, with its stock falling by more than 15% because of the double whammy of slumping oil prices and a credit rating downgrade. That downgrade came from S&P, which lowered Ultra Petroleum's corporate credit rating by five notches to CCC- from B+. In doing so, the rating agency noted that Ultra's "leverage and liquidity continue to deteriorate in light of our recently reduced commodity price deck and our estimate that the company will breach financial covenants on both its unsecured credit facility and senior unsecured notes at the end of the first quarter."

That's also a concern with Denbury Resources, California Resources, and Whiting Petroleum, which is why all three have tried to take steps to reduce their leverage and improve their liquidity in recent months. California Resources has had some success in reducing its leverage after swapping $2.8 billion of its bonds resulting in a $563 million reduction in its outstanding principal, but it still has a ways to go. Denbury, on the other hand, tried a similar bond swap deal, but it abandoned it last month after its bondholders pushed back against its offer. Whiting, meanwhile, hasn't attempted any bond swap deals, partially because it has a lot more liquidity after its banks reaffirmed its borrowing base late last year.

Nabors is in a slightly different boat and is moving lower today because falling crude prices mean continued weakness in oil-field service activities. That was evident last week after the U.S. rig count fell by another 18 rigs, marking the six straight week the rig count has declined. The rig count will likely head even lower, with it estimated that the rig count could decline by another 30% this year after falling 46% over the past year, likely leading to less work for Nabors this year.

Now what: The market continues to be very concerned about the leverage and liquidity of smaller independent oil companies, with those worries heightened whenever oil takes a big dive. This volatility won't go away until these companies either find a more permanent solution to their issues, or the price of oil rises significantly.