Shares of energy services provider Core Laboratories (NYSE:CLB) rose 5.5% in early trading on Oct. 5. By 10:30 a.m. EDT that gain had been pared to about 4%. In the end, this is just par for the course lately, with the stock often rising and falling dramatically in recent months.
Core Labs provides well enhancement services to the energy sector. While it isn't directly impacted by the price action of oil and natural gas, it is heavily impacted by the drilling activity of its customers. That's what determines demand for Core Labs' services. When energy prices are high, demand is often quite strong. Conversely, when energy prices are low, demand can be anemic. Oil prices are so low today that many in the energy sector are pulling back on their capital investment plans. So Core Labs is doing its best to muddle through a difficult energy market. (Core Labs lost $2.57 per share in the first half of the year, including material one-time charges.)
That said, because higher oil prices could lead to improved demand for its services, Core Labs often rises and falls along with the price of oil. Today oil moved sharply higher early on and Core Labs basically went along for the ride. But don't get too excited here: Oil prices remain historically low even after the bounce. In fact, many drillers are finding it hard to turn a profit at these levels and the price increase today is unlikely to result in a material uptick in demand for Core Labs' services. This is just typical energy industry volatility.
The economic shutdowns used to slow the spread of COVID-19 have left the energy sector with a huge supply/demand imbalance. Worse, unneeded oil from the depths of the economic downturn ended up in storage and will have to be worked off before energy prices can mount a sustained recovery. That's a problem because key demand centers, like aviation, are still nowhere near back to normal. Core Labs is likely to make it through this downturn in one piece, but there's a long way to go before things are anywhere near normal again.