Oilfield Service Stocks Show Resiliency

In this week’s Rigzone market commentary, Validere’s Mark Le Dain sat down with Matthew V. Veazey at Rigzone to discuss insights on the oilfield service stocks alongside Energy Advisors: Tom Curran, Barani Krishnan, and Tom Seng. Keep reading for details. 

In the past year, oilfield services (OFS) stocks have been consistently down, becoming contenders in market capitalization. This week, the market commentators shared some of their expectations that occurred and others that did not. 

Tom Curran mentioned the latest rally took the PHLX Oil Service Sector Index (INDEXNASDAQ: OSX) to its highest close since February 2020 before industry demand decreased from COVID-19 and Saudi-Russo oil price war. 

Barrani Krishnan added that no one expected to see a crude build of more than 21 million barrels. Some expected a shift in the U.S. Energy Information Administration (EIA) dataset from the snowstorm in Texas and the effects of their refining. From the icy weather, U.S. refining capacity fell to a record low of 56%. 

Validere’s Mark Le Dain pointed out that OPEC holding production steady was a surprise. It’s likely more politically acceptable to tighten inventories while some countries are still locked down.

Another surprise was the increase of oil prices based on mostly bullish market indicators. A “head fake” by OPEC sent crude prices to their highest levels in over a year despite an exponential inventory increase. To hear more market surprises from last week’s market review, click here

Validere’s Mark Le Dain also shared his thoughts on natural gas demand’s outlook in this week’s preview. Tight petrochemical feedstocks and loosening COVID-19 restrictions should contribute to a better understanding of the natural gas demand. 

Petrochemical pricing is reaching multi-year records, and this will likely boost gas prices as the respective natural gas liquids (NGL) volumes are pulled out of stream. As we get into shoulder season, we should get a better sense of the demand. 

Soon, U.S. production of crude should return to normal levels. The effects of the energy crisis in Texas will force all power and gas utilities to start next winter with adequate emergency natural gas supplies in storage. To read more on demand for natural gas, click here.

Mark Le Dain