Commodity prices are funny – they sometimes rocket up and down on the tiniest bit of news. The oil price screen is flashing red as I type this… oil is down 6% today and down not quite 20% from a month ago. So be it. Although we don’t expect oil prices to keep falling through 2019, what if they did? What impact would it have on demand for oilfield services?
Consider the following graph. This is the revenues of all public land contract drillers around the world, but most are in the US, so think of this as the US land contract drilling market. We have assumed that oil prices fall gently through 2019 to $55 for WTI:
If the price of oil trends to $55 by year’s end instead of $65 at year’s end (like we are forecasting), $1.5 billion gets wiped out of the land contract drilling market — almost $0.5 billion per quarter — for the year 2019. $2 billion comes out of the frac market.
Maybe it is because our home state of Oklahoma is getting hammered this Spring with the one-two punch of tornadoes and floods, but this recent dip in oil prices sure takes the gild off the lily.