Look out the window today, and you’ll see WTI rising to almost $40. This is because Americans are going back to work, joining the Chinese and, eventually, the Europeans.  

It will take a while for this return of the economy to trickle down to drilling activity, frac work and well maintenance… things get worse before they get better.

And because oil-related activity gets worse as time goes by, the price of work in the field declines.  Here’s our view of two key services – hydraulic fracturing (stimulation) and well servicing (completion rig):

The cost of a frac job and the cost of an hour of well servicing rig time dropped in Q1 2020 by almost 10%.  Frac will decline another 10% in Q2 while well servicing will decline 5%.  By year’s end these price declines will be done, and the cost of getting work done in the field will be at an all time low if you are an oil company.

Here’s what this means:  By year’s end, oil companies working in the US will probably be enjoying solid profits because oil prices will have been rising and the cost of getting work done will have been falling.  Healthy oil companies tend to create healthy service companies.  

2021 will be better.