Energy stocks were slammed Wednesday as U.S. oil prices plunged to their lowest levels since December 2021. The extent of the decline in West Texas Intermediate crude — down 5.5% to under $67 per barrel — seems overdone in an energy market that remains structurally undersupplied. However, we’re not ready to step in right here to try to catch a falling knife — recognizing concerns over whether fallout from global banking troubles will curtail economic growth. Lower energy costs, at the same time, help other sectors of the stock market. Bad for energy stocks For now, we’re holding onto our three oil exploration and production (E & P) stocks — Coterra Energy (CTRA), Devon Energy (DVN) and Pioneer Natural Resources (PXD) — because their breakeven levels are around $40 per barrel. They can still make money with WTI in the mid-$60s, not to mention they have some of the highest annual dividend yields in the market. The E & Ps are in the blast zone and lower commodity prices will cause producers to think twice about additional investments in production. So, directionally, the move in oilfield services giant Halliburton (HAL) makes sense as well, though we think the drop is overdone given the world does remain structurally undersupplied and needs Halliburton’s services to increase production to level more in line with long-term demand. WTI hit a session low of $65.65 per barrel around 1 p.m. ET. The big question is whether the federal government will make good on its signals to replenish the nation’s Strategic Petroleum Reserve (SPR) at WTI prices below $70 per barrel. Back in the summer, months after Russia invaded Ukraine, Washington tapped the SPR in an attempt to alleviate some of the pressure that sky-high prices at the gasoline pumps placed on consumers. As a result, the SPR has fallen to its lowest levels in decades. @CL.1 YTD mountain WTI performance YTD If the Biden administration were to start buying crude and create something of a floor in the market, that would serve to protect profits at our E & Ps. Any new production at more stabilized levels and/or money for crude and natural gas infrastructure that’s suffered from years of underinvestment would benefit oilfield services giant Halliburton. Good for other sectors While Wednesday’s action is obviously painful for our energy holdings, it highlights the need to maintain a diversified portfolio with exposure to many different sectors and end markets. In addition to lower energy prices being welcome news for the government, it’s a welcome development for companies outside of the energy complex and American consumers who drive two-thirds of U.S. economic activity. Energy is not exactly a consumer staple, but it’s certainly not something we can live without. Regardless of cost, consumers must still fill up their cars or heat their homes. In turn, higher energy costs eat into discretionary spending budgets. On the corporate side, energy oftentimes represents a large input cost. Take…
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