Shares of energy services provider Core Laboratories (NYSE:CLB) rose as much as 13% on April 29. As of 2 p.m. on Wall Street, it was holding onto almost all of that advance.
The good news driving Core Labs shares higher was twofold. First, countries around the world are starting to get back to business after effectively shutting down to stem the spread of COVID-19. That means that demand, which had fallen dramatically (pushing oil sharply lower), might actually start to come back sooner rather than later. And an update from the American Petroleum Institute showed that oil wasn't piling up in U.S. storage quite as fast as some had been expecting. So there might not be as much excess oil to work through before the global energy market gets back into balance.
For a company that provides services to oil explorers and producers, low oil prices are terrible news. If the market is bad enough, which it has been lately, oil drillers pull back dramatically on their capital investment plans. That translates into less business for companies like Core Labs. To put some numbers on that, Core Labs reported a loss of $2.44 per share, driven by asset impairment charges and the cost for staff reductions, on April 22. Even taking out those charges, earnings were down by a third year over year in the quarter. Worse, management noted that it expects demand for its services to fall around the world throughout the rest of 2020.
But today, investors appear to think, based on the positive information on demand and supply noted above, that the future might turn out better than expected. Some oil prices rose as much as 30% during the day! Core Labs stock got caught up in the enthusiasm.
The oil markets are working through a very difficult period, with supply and demand wildly out of balance. It's highly likely that volatility will remain elevated for some time. In other words, investors shouldn't read too much into one day's gains here. Core Labs' stock price could fall just as fast as it rose, and all that would be needed to spark a decline would be a bit of negative news -- like weak second-quarter earnings as customer demand remains soft.