Shares digital

The fortunes of US oil services giant Schlumberger (SLB:NYSE) are often seen as providing a useful barometer on the state of the oil industry. If that principle still holds then investors could be forgiven for thinking the signs aren’t particularly positive.

The share price has slipped nearly 20% since the start of the year and the stock was down 4% on Wall Street last week as the firm reported profits that failed to match market expectations. As a result there was something of a sector-wide sell off in the US and this was repeated among the UK-listed oil service stocks, albeit against the backdrop of Monday’s general market weakness and a declining oil price.

John Wood Group (WG.) was down more than 8% to settle at around 334p, Hunting (HTG) ticked down around 7% to 627.5p and Amec (AMEC), now an oil services stock in all but name, also lost about 7%. In the near term there may be some weakness in the sector but the good news is that most analysts see the longer term prospects in a much more positive light.

In response to the update from Schlumberger, RBC Capital Markets, which rates the company at outperform, described its near-term outlook as mixed, but said the company’s bullish tone on its long-term prospects is ‘supported by an explosion of exploration licenses and increase in new offshore rigs,’ factors which should also benefit companies in the UK.

Shares says: Fortunes should turn, buy Amec, Hunting and Wood Group on recent weakness.

by: Tom Sieber