We think things will be fine.
1. Oil has been, almost without question, the best business in the world over the past century. The fortunes made are numerous. The average citizen in Abu Dhabi was worth $17 Million in 2011. Does that mean oil will continue to be the best business? No, but if you were betting on it, I would put it on Black (gold).
2. Demand is rising. Contrary to many reports, oil demand is rising, and rising quickly. 2015 demand is up almost 2% Y/Y. When the resources to supply the world with enough oil at lower prices are absorbed, which will happen soon enough, then the world will tap the next least expensive oil, which, for now is shale.
3. Andy Hall of Astenbeck Capital compares shale oil to oil in reserve as opposed to traditional oil. He points out that is easily tapped, but also easily cut off, as it can be tapped in 30 days and has a steep decline rate and is much less expensive than traditional wells, up front. Traditional oil wells take years to tap, cost hundreds of millions up front and then decline much more slowly, so the oil companies never shut them off, as their marginal cost is so low. Using this logic, shale will be the first back to market once prices rise.
4. The price of oil is, relatively, close to rigs coming back online. Currently, the price of oil is hovering around $60/BBL. The best estimates that we have heard is that rigs will start to come back online around $60 with many more once oil reaches $70. That is not that far away. $60 is only 20% away from the current price.
Time will tell, but one cannot overreact by a short term move in the price of oil.