The most well documented financial story of the past three months has been the precipitous decline of crude. With no price surge in sight the pressure is mounting for many companies in the industry. “Some of these stocks are down 50, 60 even 90 percent,” says Yahoo Finance contributor and Belpointe chief strategist David Nelson.
One of those stocks, Goodrich Petroleum (GDP) is down another 9.5% today and a whopping 86% since the June highs. The latest dip came after it announced a plan to explore the sale of its shale assets. In short, shale oil is harder and more expensive to drill and produce than traditional methods. With lower prices squeezing margins it's no wonder they would look to shed that arm of the company.
In his most recent Tumblr post Nelson also points to names like Oasis Petroleum (OAS), shares of which have shed 75% since July. The company is being exposed to many of the same issues.
Neslon says the oil contagion isn’t confined just to energy names either. “These companies are all levered up on the price of crude. If they can’t pay their debtors, all of a sudden you have banks that can’t pay their loans...all kinds of different issues that pop up.”
The most recent hit to oil came at the hands of OPEC, or at least their most influential member, Saudi Arabia. On November 27th the group decided not to cut oil output, a move that would have sent supply lower and prices higher.
“What Saudi Arabia did,” Nelson contends, “was they fired a warning shot across the bow of the U.S. energy complex and it is an issue because the tentacles of this decline spread everywhere…. They don’t want to subsidize Iran, Iraq or Russia or Venezuela anymore. They have the reserves. They can live with it at a lower price. I think all they hope to do is slow this down.”
Related: Oil's decline could take down Russia & Europe
While the move may continue to roil markets the impact of low prices has some big geopolitical upside. “Ultimately this is a great thing, a great benefit for the world,” Nelson says. “Geopolitically there will be a huge transfer of wealth as this happens.”
Nelson doesn’t want to predict where the price settles when we reach whatever the new normal ends up being, but he thinks the days of $100 a barrel are long gone.