What happened

Oil prices plummeted today. West Texas Intermediate (WTI), the primary U.S. oil price benchmark, tumbled 9.2% to close at $98.45 a barrel, its lowest price since May 11. Meanwhile, the global oil benchmark, Brent crude oil, slumped 9% to close at $103.29 a barrel, its lowest point since May 10.

That plunge in oil prices sparked a sell-off among oil stocks. Big oil giants Chevron (NYSE: CVX) and ExxonMobil (NYSE: XOM) were down about 5% at one point in the trading day while leading refiner Phillips 66 (NYSE: PSX) was down as much as 7.4% on the day. Here's a look at what's causing the downdraft in the oil patch and what it means for these oil stocks.

So what

Oil prices plunged following the Independence Day holiday, fueled by growing concerns about demand and a surging U.S. dollar compared to other currencies. Worries are rising that the global economy could enter a recession, driven by higher interest rates to combat inflation. That would likely impact gasoline, diesel, and jet fuel demand as consumers pull back on discretionary spending, including travel. Meanwhile, a rising U.S. dollar is making buying oil in foreign currencies more expensive, which could weigh on demand.

If crude prices continue slumping, it could impact the future cash flows produced by oil companies like Chevron and Exxon. However, most oil companies will likely report gushing profits for the recently completed second quarter, thanks to high oil prices in the period. ExxonMobil already revealed that it expects its refining profits to jump as much as $5.5 billion in the second quarter. In addition, the oil giant sees earnings from its upstream oil and gas production business rising by up to $3.3 billion. That has the company on pace to produce up to $19.5 billion of earnings in the period. The company expects to return a growing portion of this windfall to shareholders via its share repurchase program, which it tripled to $30 billion earlier this year.

Chevron also appears poised to produce an earnings gusher in the second quarter. While it doesn't have as large a refining business as Exxon, it's a major oil producer. Because of that, it will benefit from rising crude prices in the second quarter. Chevron's growing cash flow is giving it more money to return to shareholders -- it increased its dividend again this year and authorized a $10 billion repurchase program. It's also allowing Chevron to accelerate its move into lower carbon fuels.

Finally, those strong refining market conditions should be a boon for Phillips 66, given its focus on refining. This year's improvement in the refining market is enabling Phillips 66 to produce more cash. That allowed Phillips 66 to increase its dividend, resume its share repurchase program, and pay off $1.45 billion in debt. It also enabled the company to move forward with an $850 million project to convert a California refinery to a renewable fuels facility.

Now what

Oil prices have cooled off considerably in recent weeks and are now back below $100 a barrel in the U.S. However, prices are still relatively high for oil and refined products. Because of that, oil companies will likely report gushing profits for the second quarter. Meanwhile, they could produce strong results again in the third quarter if oil prices remain elevated. While concerns are growing that a recession could cause oil prices to keep falling, there are plenty of upside catalysts, including ongoing supply issues because Russia invaded Ukraine. Given those dueling dynamics, oil prices will likely continue fluctuating wildly in the coming months, leading to more volatility in oil stocks.

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Matthew DiLallo has positions in Phillips 66. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.