Why ConocoPhillips Stock Got Mashed on Monday

All things being equal, when crude oil prices rise, the fortunes of energy exploration and production (E&P) companies increase (as do their share prices). When said prices decline, the opposite is often true. This was the key dynamic behind upstream oil company ConocoPhillips' (NYSE: COP) nearly 4% drop on Monday.

The costs of war

As with crude prices generally of late, the most recent gyrations were mostly due to the Iran war. Both sides pulled back from direct military action, with President Trump stating that his administration was "giving talks some space," implying some level of diplomatic discussion between the two sides.

Image source: Getty Images.

On those optimistic notes, oil prices weakened in anticipation of progress toward a resolution of the conflict. Hence the deleterious effect on the market values of price-dependent E&P titans such as ConocoPhillips.

We should bear in mind, though, that the war is far from over. As we've seen since it began in February, such lulls can suddenly and unexpectedly descend into kinetic military action; the reverse is also true. In the likely case the former recurs, prices will almost certainly pop as they have before.

Price gambles

This remains an unpredictable situation that can flare up or ease at any point, so it's going to be very challenging for investors to time the peaks and valleys for an impacted stock like ConocoPhillips.

Ultimately, I believe the U.S. and Iran will have to reach some form of settlement, which will almost certainly pull the rug out from under those prices. Given all that, I'd avoid E&P stocks for now.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends ConocoPhillips. The Motley Fool has a disclosure policy.