We are getting some news out of Saudi Arabia about oil cutbacks that will have a dramatic impact on the price of oil and make it unlikely we will visit the $43 level again.
We all know that our production has already peaked and I expect it to decline pretty precipitously versus what others say it will. I am in the camp inspired by David Demshur, CEO of Core Labs (CLB), that says the 70% depletion rate the first year of a shale well is extraordinarily shallow and that means our production will drop quickly if drilling remains this muted.
But I think just as important is what Demshur said about Saudi pumping -- that it simply can't be done full out much longer without too much water getting into the well and debasing it, something that is just plain irresponsible.
The news today from the wires that the Saudis are going to cut back is the missing piece of the puzzle that should cause oil to trade at these levels and not go much lower. I say not go much lower because we do have Iranian oil coming in soon if the deal is signed.
That said, the real takeaway here is that I think Demshur is going to be dead right and we are buying the oils very aggressively for Action Alerts Plus.
Oh, and don't forget, with this heat, you are going to see a real burn-off of natural gas because overtime power plants run on the stuff to meet the demand for air conditioning. That's all good for the complex.