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A Pre-Earnings Analysis of Schlumberger before 3Q17

PART:
1 2 3 4 5 6 7 8
Part 7
A Pre-Earnings Analysis of Schlumberger before 3Q17 PART 7 OF 8

Schlumberger’s Reaction to Crude Oil’s Price Changes

Correlation between Schlumberger and crude oil

The correlation coefficient between Schlumberger’s (SLB) stock price and the West Texas Intermediate (or WTI) crude oil prices from October 2, 2016, to October 2, 2017, was 0.59. This indicates a robust positive relationship between Schlumberger stock and crude oil prices.

The VanEck Vectors Oil Services ETF’s (OIH) correlation with crude oil since October 2, 2016, is 0.69. OIH tracks an index of 25 oilfield equipment and services (or OFS) companies. Schlumberger’s correlation with the Dow Jones Industrial Average (DJIA-INDEX) since October 2, 2016, is 0.31.Schlumberger’s Reaction to Crude Oil’s Price Changes

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Has SLB’s correlation with crude oil price changed?

As we can see in the chart above, SLB’s correlation with crude oil prices is lower in the trailing year to October 2, 2017, compared to the previous year to October 2, 2016. Crude oil prices are ~4% higher compared to a year ago. 

A high correlation bodes well for SLB’s stock price, with crude oil prices strengthening over the past four weeks. OIH’s correlation with crude oil is also lower in the trailing year to October 2, 2017, versus the previous two years.

Correlation between SLB’s peers and crude oil price

Oil States International’s (OIS) correlation coefficient since October 2016 is 0.51, while National Oilwell Varco’s (NOV) correlation coefficient since October 2, 2016, was 0.53. You can read more about NOV in Market Realist’s What Lies Ahead for National Oilwell Varco in 2017

CARBO Ceramics’ (CRR) correlation coefficient with crude oil prices since October 2, 2016, is 0.42. Similar to Schlumberger, the correlation coefficient between the stock prices of OIS and CRR and crude oil prices decreased in the past year compared to the previous year.

In the final part of this series, we’ll discuss analysts’ recommendations for Schlumberger.

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