It is never easy to time a market, but it is even more difficult to predict the ups and downs in energy markets. However, the risks for the markets have increased dramatically in recent days and the dynamics of demand and demand are evolving so that after a slow and gradual recovery since 2014, we could again experience a deep decline in the oil markets.
The escalating trade war between the United States and China, increasing evidence that the US economy has been slow, and the conciliatory tone of US President Donald Trump vis-Ã -vis Iran indicate a tough summer for bulls in oil and stock related to the energy sector. Indeed, the stock performance of companies that provide crucial services to oil producers paints a grim picture of the prospects for oil and industry
Schlumberger Ltd. (NYSE :), & # 39; the world's largest oil service provider, has seen its shares collapse more than 24% since the April high. The stock closed 0.9% at $ 36.18 yesterday, on the fifth consecutive claim day. The closest competitor is Halliburton Co. (NYSE 🙂 does not do better. After an increase of around 20% this year until mid-April, his stock has now fallen by 28%.
Companies in the failure to support the April rally or to keep up with the overall recovery in the global oil market, and the index has fallen by around 25% since mid-April.
Deteriorated macro environment
Schlumberger, active in more than 120 countries, supplied the industry's most comprehensive range of products and services, from exploration to production, and predicted a good year for the oil industry in the last month.
"The return of international growth, and in particular the return of offshore activities and exploration, is what we have been waiting for," said CEO Paal Kibsgaard analysts and investors on April 18 at a conference call. "In the past year we have had international growth in 2014, so this is a five-year wait, so we are more than ready."
But the deteriorating macroeconomic environment and the reluctance of major oil and gas producers to increase their investments are hampering the company's efforts to recover from the slump in which it has been stuck since mid-2014.
However, the stock, which has fallen by more than 60% in the last five years, may look attractive to some contradictory investors. The annual dividend yield of 4.69% is more than double the five-year average, while the forward price-to-profit multiple of 16.5 is the lowest in the past five years.
But historical data may not be too relevant for oil service providers when the sector they work for is undergoing a fundamental change. Under pressure from shareholders, exploration and production companies are keeping their spending under control, which reduces the demand for oilfield services, according to S & P GIobal, which boosted Schlumberger's credit rating last week.
"Oilfield service services will no longer be able to generate the high operating margins they did in 2014," Carin Dehne-Kiley, analyst at S & P, wrote in a report last Friday. Said Dehne-Kiley:
"The oilfield service sector has fundamentally changed as a result of continuing efficiency and productivity gains realized by E&P companies, as well as investor sentiment calling on E&P companies to live within cash flow and limit production growth."
Bottom line
The shares of oil service companies have become cheaper after a steep decline in the last five years. But despite their more attractive valuations, we don't think it's time to make their stocks pop up. In this uncertain global economic and geopolitical environment, oil prices may not support their recent profits. It is better for investors not to trade in this now.
