Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of onshore oil driller and oilfield service company Key Energy Services Inc (NYSE:KEG) are getting hammered -- down more than 12% today. After rebounding a little bit early in the year, the stock is down 34% since mid-January, and down a whopping 85% since peaking last April:
So what: Oil prices are down 3% today on more news of growing global oil inventories, and minimal demand growth. Factor in the end of winter in the northern hemisphere, and this is expected to put further downward pressure on demand for crude. In turn, this is putting more pressure on oil companies like Key Energy, which gets most of its business operating those drilling rigs.
Now what: There's really no clear end in sight, as long as production remains steady or -- as it appears is possible -- actually increases in the next few months. U.S. drilling rig counts are down 36% from this time last year, but there are still 922 rigs drilling new oil wells.
Frankly, Key Energy Services is an onshore driller, and there's probably fewer worse places to operate in the current market. U.S. drilling activity is going to fall significantly in 2015, and Key Energy will suffer significantly for it.
Don't get me wrong -- I'm not saying the company won't survive the downturn, but I am saying that it's probably the last segment of the oil business that I would invest in right now. There's just no way to predict how long the current downturn will last, but it's very likely that drilling activity in the U.S. will be down significantly for at least a year. Maybe longer.