Global Crude’s rapid collapse catches shale oil operators flat-footed

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By Jacob Maslow

Fracking Graphic Explanation
Graphic illustration of fracking

Trying to find a bottom for global petroleum prices is like catching a falling knife-not exactly a safe activity. Case in point: shale oil extractors Continental Resources’ CEO Harold Hamm said that the shale industry was ready for a world of $80 oil. Sure. Fine. But we’re in a $50 per barrel world now and the trend doesn’t show any signs of stopping any time soon. Hamm obviously spoke too soon. He is hardly alone, even oil services giant Halliburton got caught flat-footed by how fast global oil prices imploded. Halliburton’s CEO Dave Lesar was on the record as saying the US petroleum sector ‘will be fine’ if oil hovered between $80 and $100. And that was a mere two months ago.

Flight to quality and the US dollar
It is obvious that the speculation that was keeping oil prices over the $100 mark for a very long period of time has reversed course. Now, the ‘smart money’ is pushing oil prices down. As you can probably tell, the price of oil is fictional and a creature mostly of speculation. While there is a core component-global petroleum demand-that forms a rational basis for base line oil price movement, the speed of that movement, as well as its scale is driven more by commodity traders and speculators than base supply and demand issues. The good news is that you don’t have to get out of the energy stocks. You only need to do what savvy investors do in a down market: be more selective. Let’s face it, during boom times, it is very hard to pick the diamonds from the coal. Now that the global oil sector has its back against the wall, it is easier to spot solid companies with solid infrastructure that have depressed stock prices. Wait a little while as this sector nears bottom prices before you start buying. Regardless, focus on US companies with solid fundamentals. Not only do you benefit from a stock bounce back but you also get a double benefit by buying a company in US dollars precisely at a time when the greenback is appreciating in value against other currencies.
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