Why Tellurian, Kosmos Energy, and NexTier Oilfield Solutions Plunged on Wednesday

Shares of smaller-cap energy-sector names Tellurian (NYSEMKT: TELL), Kosmos Energy (NYSE: KOS), and NexTier Oilfield Solutions (NYSE: NEX) fell hard on Wednesday, down 16.4%, 9.2%, and 6.5%, respectively, as of 2:03 p.m. ET. The broader markets were slightly higher at that time, making the decline in these names -- and energy stocks more broadly -- even more pronounced.

Several forces worked against energy stocks Wednesday. First, crude oil prices were down about 3% as of this writing as investors anticipated that an economic downturn would result from more aggressive Federal Reserve interest rate hikes. While the price of natural gas was flattish, it too was well off the high it touched earlier this month. Additionally, President Joe Biden has summoned the heads of the leading oil companies to the White House for a meeting Thursday, and some expect that pressure from Washington might lead to new supply coming online faster.

Last week, following the Federal Open Market Committee's largest single-step hike in the federal funds rate since 1994, oil prices started dropping, and energy stocks plunged with them. U.S. benchmark West Texas Intermediate crude is now between $106 and $107, down from about $123 per barrel prior to the rate hike. Meanwhile, natural gas futures have decreased to around $6.83 from highs around $9.30 earlier this month. The thinking among energy investors appears to be that a recession would reduce oil demand, sending prices down. Moreover, since oil is priced in dollars and higher U.S. interest rates strengthen the dollar's value, they also tend to suppress the price of oil.

Source Fool.com