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Which OFS Companies Are Correlated to Crude Oil Prices?

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How did crude oil prices move?

OFS (oilfield equipment and service) companies are impacted by rig counts and energy prices. In the past year, WTI (West Texas Intermediate) crude oil prices fell ~12%. Crude oil prices have fallen since June 2014. The prices reached a multiyear high of ~$110 per barrel. The prices remained weak throughout 2015. Since February 11, when WTI crude oil prices reached a one-year low of $26.21, the prices increased 50%.

In this series, we’ll discuss how correlated crude oil prices are to OFS companies’ share prices. We’ll start the discussion with the one-year and six-month horizon.

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One-year horizon

In the past year, Schlumberger (SLB)—the largest OFS company that operates in the US and around the world—had a strong correlation with crude oil prices. The correlation coefficient between Schlumberger’s stock price and crude oil prices from March 2015 to the present is 0.68. This means for every $1 change in crude oil priced over the past year, Schlumberger’s stock changed by $0.68. This indicates a relatively strong degree of correlation between crude oil prices and Schlumberger’s stock prices. Schlumberger’s financial performance in 2015 was impacted significantly by the large decrease in land activity led by the fall in crude oil prices. This had a negative impact on the performance of Schlumberger’s Reservoir Characterization segment in the past year. Also, persistent pricing pressure lowered the revenue of Schlumberger’s Drilling & Measurements segment during this period.

Patterson-UTI Energy’s (PTEN) share price has a relatively low correlation with crude oil prices. Since March 2015, the correlation coefficient is 0.32. The company operates land-based drilling rigs and a large fleet of pressure pumping equipment. Typically, there’s a lag between crude oil prices and the rig count. Patterson-UTI Energy’s share price had a low response to crude oil prices over a one-year horizon. The correlation coefficient between the VanEck Vectors Oil Services ETF (OIH), an ETF tracking index of 25 OFS companies, and crude oil priced from March 2015 to the present is a strong 0.70. This is higher than all of the OFS companies in our set.

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Six-month horizon

The correlation coefficient between Schlumberger’s stock price and crude oil prices from September 2015 to the present is 0.69. There continues to be a strong degree of correlation between crude oil prices and Schlumberger’s stock prices on a six-month horizon. Patterson-UTI Energy’s share price has a relatively low correlation with crude oil prices. Since March 2015, the correlation coefficient is 0.47. Core Laboratories (CLB) also had a relatively low correlation of 0.50 over the six-month timeframe. Cameron International (CAM) is sixth on our list based on the degree of correlation with crude oil prices over the past six-month period.

We noted that there had been little change in the order in our set of OFS companies on the correlation scale. However, the degree of correlation decreased marginally from a one-year to six-month timeframe, except for Patterson-UTI Energy and National Oilwell Varco (NOV). So, crude oil prices are relatively stronger drivers on a longer time scale. We’ll discuss crude oil prices’ correlation on a three-month and 30-day basis with these stocks in the next part. We’ll also analyze how crude oil prices drive OFS companies’ values.

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