Reminding investors that oil services equities are among the names most correlated to crude prices, the VanEck Vectors Oil Services ETF (NYSEArca: OIH) is higher by nearly 49% year-to-date.
With oil demand rebounding and Bank of America forecasting that crude could reach $100 per barrel next year, OIH may have more gas left in its tank when it comes to 2021 upside. In fact, there are company-specific green shoots emerging that augur well for the oil services exchange traded fund.
Oilfield services providers Schlumberger (NYSE: SLB), Halliburton (NYSE: HAL), Baker Hughes (NYSE: BKR), and National Oilwell Varco (NYSE: NOV) are signaling prices for their equipment and services are bottoming and they’re hiring new staff to meet rebounding demand, reports Alex Kimani for OilPrice.com.
In order, Schlumberger, Halliburton, and Baker Hughes are OIH’s top three holdings and combine for almost 39% of the ETF’s roster. National Oilwell Varco commands a weight of 3%.
Opportunities with OIH
When oil prices plunged at the height of the coronavirus pandemic, exploration and production companies rushed to cut costs, trimming exploration budgets in the process. Those moves pinched OIH components. Now, with crude prices rebounding, producers want to capitalize and shale output could tick higher for the first time in over a year.
“It’s a clear sign that U.S. crude production is ticking back up after a very depressing period. Indeed, for the first time since the pandemic hit, U.S. shale output is expected to rise by 38,000 barrels per day in August despite generally flat spending by oil and gas producers,” according to OilPrice.com.
By some estimates, approximately 200,000 roughneck jobs at domestic shale plays were eliminated last year. Good news for job hunters and investors considering OIH: oilfield workers are reporting a rising number of job openings in recent weeks.
“According to trade group Energy Workforce & Technology Council (Council), U.S. oilfield jobs increased in May by 1.6%, or about 9,700 positions, with Some 27,000 oilfield jobs having been regained since February,” notes OilPrice.com.
That’s an important trend for OIH investors because the oil services industry typically staffs field positions in advance of being able to raise prices on equipment and services. With crude prices and staff numbers rising, OIH member firms could soon exert some pricing power.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.