- Core Laboratories' decision to cut its dividend in late December is a sign that the oil market faces a tough future, CNBC's Jim Cramer said.
- "They were telling you this situation is only going to get worse for the industry, not better," the "Mad Money" host said.
- The company reduced its fourth-quarter earnings forecasts by roughly 15% yet slashed the dividend by about 55%.
"Management wouldn't cut it unless they had some serious long-term concerns that the oil industry just isn't coming back the way it's supposed to when the price of crude goes higher," the "Mad Money" host said.
Core Labs reduced its dividend from 55 cents to 25 cents, at a time when the oil business is "the worst I have ever seen it," Cramer said, arguing it is even worse than January 2016, when oil traded below $30 per barrel.
Core Labs — an oil services company — is thoughtful and makes decisions on traditional return on equity, not on a "drill-baby-drill" hypotheses, Cramer said.
It would not make the decision to cut its dividend without thoughtful consideration, Cramer argued.
This is especially true, he said, because the company also reduced its fourth-quarter earnings forecasts by roughly 15% yet slashed the dividend by 55%.
"That doesn't make any sense unless management has come to the conclusion that the oil business has fundamentally changed," he said.
The state of the oil market has been in the spotlight for almost a week after the U.S. killing of Iran's top military general injected fresh uncertainty into the Middle East.
Oil prices fell 4% Wednesday following President Donald Trump's suggestion that Iran "appears to be standing down," one day after it launched a rocket attack against military bases in Iraq housing U.S. troops. No Americans were injured, he said.
International benchmark Brent crude rose to more than $71 per barrel when the attack was first announced, but later dropped to around $65.
Cramer has had a negative outlook toward the oil industry's prospects as of late, especially since September, when a drone attack on Saudi Arabian production facilities took half of the country's oil supply offline.
At the time, he advised viewers to sell some of their oil stocks because the lack of a sustained spike in oil prices illustrated the dramatic way in which the landscape has changed.
The landscape, Cramer reiterated Wednesday, is now one where oil use is not seeing meaningful upticks, where the U.S. has plenty of spare output capacity and where technology has created efficiencies in the oil-drilling process.
"There's simply oil, oil everywhere and not a drop to drill," he said. "When Core Labs, the brains of the oil complex, cut its dividend last week, they were telling you this situation is only going to get worse for the industry, not better."
Core Labs, based in Amsterdam, was down around 2.5% on Wednesday, trading just above $40.
That is about $4 higher than its 52-week low, which came on Dec. 31 after the company lowered its fourth-quarter revenue and earnings guidance and announced the dividend news.
The oil services company notched its 52-week high of $75.63 in April.