Great article on the current situation with the US oil business, focusing on fracking.
Here is an excerpt:
In short, even by mid-2014 the worm was turning. There is white sand virtually everywhere, and the number of new mining operations was proliferating dramatically. It was only a matter of time before supply would have caught-up, causing prices to weaken and the windfall element in a plentiful commodity to be ground out of profit margins.
But with the global collapse of oil prices, the whip is now recoiling violently. At $50 per barrel, the 1600 rigs in the petroleum patch will drop to under 1,000 as contracts run off, and tumble lower from there. Since fracking demand is driven by new drilling rather than current production, the fall-off in demand will be equally severe.
It goes without saying that in the face of today’s great oil deflation, EMES’ volumes and margins will collapse and its windfall rent bloated earnings will wither as current contracts run-out. But never mind, the fast money is already out of the stock. At $54/share, its down to less than half of its value on Labor Day because the crude collapse has now triggered an equal and opposite mode of “price action”.