I wonder to myself though if these stocks really do track the price of crude oil because if oil prices drop super low then these companies could have long term damage due to large losses in profit. Oil prices going back up will help the companies regain profits but they will lag behind crude prices if they are even in business anymore to refine/sell oil.
You're totally right. Drilling (here I use it as a catch all from exploration to all services that happen to make a rig punch a hole in the ground) companies have the most sensitivity <- When a barrel is trading low, well starts are low because all of that front-end drilling work is subsidized by the wells on-line which are selling crude to refiners. When barrel prices recover, then there is a lag time because planning can now resume, and then new well starts can occur. Time is eaten up with geologists, planners, regulatory agencies, etc before the new rigs can get on site and drill; the the drilling has to happen; then the pipeline or storage units have to happen. Huge lag.
I've had a few conversations with family members in the drilling services industry about how ridiculous it is that despite that drilling demands a long term planning process, it is tied to the short-term planning cycles of the downstream value adders. As a result, the market will not optimize drilling.
Anyway a long winded way to say that everyone in the supply chain is affected but the most affected are the ones who are way at the front of the lifecycle.
http://www.investopedia.com/articles/active-trading/021315/companies-affected-most-low-oil-prices.asp edit: They're hurt in more ways than one too. Coming in with a dog in the fight HAL laid off 1/3 of their workforce (combo of recession and after the white house's moratorium on offshore drilling) including two family members and DO is about to lay off another.
TheAnonOne is right. Making a play in oil (commodity or companies) is super tricky because the market isn't the only actor (ISIS, OPEC, environmental agencies, etc).