Shares of energy services provider Nabors Industries (NYSE: NBR) were down by more than 20% on June 24. Peers Borr Drilling (NYSE: BORR) and Patterson-UTI (NASDAQ: PTEN) were both off by around 12%, better than Nabors, but still a huge amount of red ink for a single day on Wall Street. A material oil price decline was the obvious reason for the drops here. That said, there's some important backstory that investors need to understand before even considering dipping a toe into this out of favor sub-sector.
COVID-19 has upended the energy industry. There were already oversupply issues when the coronavirus began spreading across the world in early 2020. So when countries started to effectively shut their economies down to slow the spread, oil prices took a massive hit as demand crashed. It was so bad that oil actually traded below zero at one point. Although it was a temporary dip and there were some unique technical issues involved, for a brief moment in time drillers were essentially paying customers to take their oil. It's obviously not that simple, but the takeaway is that the energy industry was in a very bad place.
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