Russia-Saudi Output Clashes, Goldman Forecast Cuts Shake The Market: 5 Oil Services Stocks That Are Weathering the Storm

The week’s trading is starting with a nightmare for oil prices as WTI-graded crude oil tumbles 3.6% on Monday, returning to its lowest level since late March.

Why Is Crude Oil Plummeting? Production War Sparks Concerns of Market Instability

Oil prices are facing challenges as concerns mount over a potential production war between Russia and Saudi Arabia, which could disrupt the collaborative efforts of producing nations in enacting restrictive policies. Additionally, the sluggish recovery of Chinese demand has added to the weakness in the oil market.

Russian oil exports to China and India surged to record high levels in May. In contrast, Saudi Arabia, the largest global oil exporter, recently announced a plan to decrease output by 1 million barrels per day in July, bringing it down to 9 million bpd.

This move reflects Riyadh’s aim to sustain prices while Moscow strives to maintain oil flow to Eastern markets amid the country’s need to mitigate the impact of G7 sanctions. The divergent strategies pursued by these major players are now causing cracks in the market, further exacerbating the prevailing uncertainties.

Read also: Benzinga’s Top Ratings Upgrades, Downgrades For June 12, 2023

Goldman Sachs Revises Down Oil Forecasts, Citing Rising Supply, Changing Sanctions Dynamics

Due to increased supply from Russia and Iran, Goldman Sachs analyst Callum Bruce, CFA, and his team have revised their December 2023 Brent forecast downward from $95 to $86 per barrel. Furthermore, Goldman Sachs’ oil analysts have raised their projections for global supply (excluding core OPEC) in the second half of 2023 and 2024 by approximately 0.8 million barrels per day.

The analysts attribute these adjustments to constraints on supply growth in other regions and the ongoing efforts to combat inflation, which have led to changes in sanctions enforcement and the unlocking of previously limited productive capacity. As a result, the forecasted supply for Russia, Iran and Venezuela in 2024 has been increased by 0.4, 0.35, and 0.05 million barrels per day, respectively.

Oil Services Stocks Outperformed Oil E&Ps

The relative gain in the VanEck Oil Services ETF OIH over the SPDR S&P Oil & Gas Exploration & Production XOP is an indication that oil services stocks have been performing better than oil production and exploration stocks.

Best performing Oil Services Stocks In June

• Cactus Inc. WHD: 27.2%
• Liberty Energy LBRT: 15.3%
• RPC, Inc. RES: 14.7%
• Oceaneering International, Inc. OII: 13.7%
• ProPetro Holding Corp. PUMP: 13%

Biggest Players In the Oil Services Industry By Market Cap

• Schlumberger Ltd. SLB: $66.8 billion
• Baker Hughes Company BKR: $30 billion
• Halliburton Company HAL: $28.6-billion market cap

Most Undervalued Oil Services Stocks (Based On 12-month Forward P/E Ratio)

• NexTier Oilfield Solutions Inc. NEX: 3.3x
• Liberty Energy: 3.9x
• ProPetro Holding Corp.: 4.3x
• RPC, Inc.: 5.8x
• Patterson-UTI Energy, Inc. PTEN: 6.0x

Most Overvalued Oil Services Stocks (Based On 12-month Forward P/E Ratio)

• Dril-Quip, Inc. DRQ: 55.5x
• Valaris Ltd. VAL: 30.5x
• Core Laboratories Inc. CLB: 24.9x
• TechnipFMC plc FTI: 22.8x
• Baker Hughes Company: 18.5x

Read now: ExxonMobil Plans To Double US Shale Output In 5 Years

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