How Are Oil Market Movements Impacting Halliburton?

by Trefis Team
Halliburton Company
Rate   |   votes   |   Share

Halliburton (NYSE:HAL) has seen its stock price decline by almost 30% since early October, currently trading at about $31 per share. While the stock has been under pressure for some time now, due to weaker activity in the Permian basin and pricing pressure in the fracking market, the current sell-off is largely tied to the oil market, which is currently in bear territory. Below, we take a look at the reasons for the weakness and what the outlook is like for the company.

We have created an interactive dashboard analysis which outlines our expectations of Halliburton over 2018. You can modify the drivers to arrive at your own price estimate for the company.

Why Are Oil Prices Declining? 

Brent crude prices have declined from levels of around $85 per barrel in early October to about $60 currently. There are multiple factors driving the decline. For one, U.S. production growth has been strong, with the Energy Information Administration noting that production has risen by 1.5 million barrels per day (mmbpd) over the past year, with production currently at around 11.3 mmbpd. Saudi Arabia, the leading OPEC producer, has also been increasing its output and has come under pressure from the U.S. to refrain from production cuts at next week’s OPEC meeting. Moreover, the U.S. sanctions over Iran – which were expected to tighten available global oil supply – appear to be having a weaker than expected impact, as the U.S. allowed some nations including China and India to continue buying Iranian crude temporarily. Separately, there are concerns that demand could also take a hit, as the ongoing trade dispute between America and China potentially weighs on global growth.

Oilfield Activity Should Remain Strong In Medium Term

Oil prices have a direct impact on oilfield services activity with a slight lag. However, the rotary rig count – which is a leading indicator of oilfield services demand – has held up relatively well. The U.S. rig count has grown from levels of around 1,052 in early October to about 1,082 in mid-November, although last week’s report saw a modest decline. Moreover, there are some larger trends that could drive demand in the oilfield services industry. According to Halliburton’s chief rival Schlumberger, since 2014, several international operators have been conserving cash by focusing on maximizing production from existing fields, while also investing in short-cycle projects, rather than committing to full-cycle investments. However, this is unlikely to be sustainable, with production declines in many countries across the world, meaning that larger investment could be inevitable in the medium term. Moreover, in the U.S. market, where much of the growth has been driven by unconventional wells, service intensity could see an uptick as easily accessible reserves get depleted.

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs

For CFOs and Finance Teams | Product, R&D, and Marketing Teams

More Trefis Research

Rate   |   votes   |   Share


Name (Required)
Email (Required, but never displayed)
Be the first to comment!