Shares of energy companies tumbled Wednesday as unseasonably warm winter weather pushed oil prices down more than 4.5%.
Top U.S. oil companies Exxon Mobil ,Chevron and ConocoPhillips all fell 4.6% at the close of trading on the New York Stock Exchange.
The Philadelphia Stock Exchange's oil services index was down about 4.6% as low oil prices and a profit warning by index member Nabors Industries weighed on drillers. "A lot of people are saying, 'My God, with this warm weather, if the economy slows down then there is definitely going to be real downward pressure on oil prices,'" said Oppenheimer & Co. analyst Fadel Gheit.
U.S. crude oil prices fell below $59 a barrel.
Natural gas prices have dropped 30% since late November on the mild winter demand and high inventory levels. Gas slipped another 13 cents on Wednesday to $6.17 per million British thermal units.
"What is keeping natural gas prices from total collapse is basically the higher oil price," said Gheit. If oil prices fall to $50 a barrel, gas prices could plummet to around $4 per million Btu, he said.
Leading oil service companies Schlumberger and Halliburton were off 3.9% and 4.1%, respectively, while Weatherford International and W-H Energy Services dropped around 8%.
Analyst Mark Urness of Calyon Securities said, "Unless we get cold weather pretty soon, gas prices are going to go lower. ... Operators will defer drilling plans."
Weatherford was hit because of its large exposure to Canada, where weak natural gas prices have already slowed shallow drilling operations, he said. "The scenario of a normal winter looks pretty unlikely at this point. The sentiment has turned very negative," he added.
A warm winter could also have near-term implications on exploration and production companies with a large gas exposure, including XTO Energy, Chesapeake Energy and ConocoPhillips.
"The other side of the equation is the rising costs of pulling gas and oil from the ground," said Keith Stribling, a portfolio manager of the HighMark Value Momentum Fund.
He said that lower prices coupled with cost pressures in some markets has prodded some companies, like ConocoPhillips, to put off some projects until there is a better cost structure. "There is a risk to the commodity price right now and you certainly wouldn't want to get caught on both sides of that (equation)," Stribling said.