Slippery Oil Price

U.S. stocks' drop today may have been steep, but the real pain was felt in oil markets. The U.S. oil price benchmark tumbled a stunning 24.4% today, to settle at $20.37 a barrel. It's the second drop of at least 24% in the past two weeks, which also included two additional down days of about 10%.

The price of oil is now at the lowest it has been since early 2002, and is off nearly 70% from early January.

A quick recovery doesn't appear likely. Avi Salzman explains:

Analysts have been warning that the oil price drop brought on by simultaneous supply and demand shocks will cut deep and last a long time. Saudi Arabia, Russia, and other nations are ramping up production just as the coronavirus causes economies around the world to grind to a halt. Demand was once expected to grow by at least 1 million barrels in 2020.

Now, Goldman Sachs expects it to fall by 1.1 million barrels for the year, the largest drop in history, according to analyst Damien Courvalin. Demand could fall by 8 million barrels in the second quarter, Courvalin estimates. The U.S. and other countries are buying crude to place into storage, but those actions are unlikely to stop the declines in price.

That's hitting beleaguered energy stocks, which fell about 14% today. The sector has had four of its five largest one-day declines in its history this month. It's now trading at levels that it last hit back in 2003.

Investors fear insolvency for several higher-cost producers, who won't be able to break even on their wells with oil prices as low as they currently are. Add in leveraged balance sheets, and it's a recipe for failing firms.

The strongest producers should survive, however, and benefit from the shakeout of many of their competitors. Several oil stock dividend yields appear mighty attractive after the sector's sharp selloff. The question is whether the companies will be able to afford to continue paying them.

Avi has some names to bet on—and avoid—here.