A lot to talk about in the oil sector space as many mavens weighed in this week on oil, while the energy sector experienced what I would call a 'flash rally.' As we near the one-year anniversary of the 'shale bust', it's time to chart a course for the next several months.
First, we had the Mad Money interview of Core Labs CEO David Demshur, in essence calling a bottom for oil, but in the most 'geology-prone' way the CEO of a geology engineering company could – he cited the severe front-loaded nature of shale wells and saw incipient production drops that would lead to a $70 oil price by the end of 2015.
Let's start by saying that the depletion rates of shale wells are hardly a novel idea to us – I dedicated a full chapter entitled “Shale oil is a Ponzi Scheme” out of my book to discuss depletion rates and their long-term impact on the shale producers. In spite of the 'novel' warnings of Demshur, most all of the quarterly reports we've been seeing in the last two weeks continue to proclaim increased efficiencies and production numbers for the shale E+P's, including guidance for even more production to come. (I say mostly, because Whiting Petroleum (WLL) bucked this trend, but their problems are deep, dire and well-documented). So, while depletion will make itself known with a bang and shale is a very, very limited resource here in the US, 2015 is far too soon to feel those impacts. The predictions of oil company CEO's are notably useless.