Schlumberger’s one-week returns
In the week ending July 27, Schlumberger (SLB) rose 1.4%. In comparison, the Energy Select Sector SPDR ETF (XLE), which tracks an index of US energy companies, increased 2.3% since July 20. SLB outperformed the VanEck Vectors Oil Services ETF (OIH), which tracks an index of 25 oilfield equipment and service (or OFS) companies, which rose 0.7%. The SPDR S&P 500 ETF (SPY) increased 0.6%, while the SPDR S&P Oil & Gas Equipment & Services ETF (XES) increased 1.3%. Schlumberger accounts for 0.39% of SPY.
Crude oil’s price and rigs
As of July 27, the WTI crude oil (USO) price was 2.5% lower compared to a week ago. Despite the weakness in crude oil’s price, two additional rigs came online in the United States in the week ending July 27. To learn more about oil prices, read Geopolitical Turmoil Back: Which Oil-Weighted Stocks to Ride?
How are crude oil price and rig count affecting SLB’s returns?
Lower crude oil prices can lead to lower exploration and production activities from upstream producers. Lower upstream capex typically leads to lower drilling and rig count, which moves revenues and operating margin for oilfield equipment and services (or OFS) companies. In the past week, the US onshore rig count increased by six, while the inland water rigs fell by three and the offshore rig count decreased by one. In the Gulf of Mexico, the weekly rig count decreased by two in the past week. In June 2017, the international rig count decreased by 0.8% to 959 compared to May 2018.
While higher US rig count can increase Schlumberger’s revenues and earnings in Q3 2018, lower international rig count can affect earnings negatively.
Next, we’ll discuss Schlumberger’s stock price forecast.