Picture yourself fishing below a hydroelectric dam with 5 generators running. The water is flowing strong. I am fishing 200 yards below the dam and you are fishing 2 miles below. They just shut down two of the generators because they don’t have enough demand for electricity.
The water is still flowing but at a much slower pace. I feel it immediately and you don’t feel it for 6 or 7 hours.
This is the scenario in Houston today! The oil industry has just had a 30% drop in commodity prices in the past 6 months because of oversupply and low demand. The activity level below our economic dam has just dropped. The industry is just beginning to react to the new environment. Companies are watching to see if the drop is temporary or longer term.
What is interesting is the public perception of what is going on. Depending on which industry you ask they feel the change to varying degrees. If you speak with someone in the E&P industry they are watching the change like a hawk. They are fishing 200 yards below the dam!
Should you panic? Is it going to get worse? If I knew I would be sitting on a beach in Cabo.
I do think you should be making contingency plans. First, to deal with what fallout occurs at $75 per barrel oil. Second, what to do if it get’s worse! The thing to remember is that there is still water flowing.
What steps are you taking to manage the dropping water volume?