The Halliburton forecast of an upcycle for oil services likely needs to be put into context, as while activity should rise in the sector with higher oil and gas prices, it is unlikely that we will see a major boom. The uncertainty in the energy market, coupled with ESG pressure and borrowing constraints means that the oil industry will likely focus on its lowest hanging fruit first and may hold off on secondary opportunities completely. The oil service guys will benefit because the more productive shale wells can require longer laterals, deeper wells, and more fracking pressure, but it will likely be quality over volume when it comes to drilling activity, in keeping with what we have seen year to date.
While the forward natural gas price in the chart below likely reflects expect production from wells that are operating or already close to completion, we do not believe that better activity for the oil service companies is mutually exclusive from continued higher oil and gas prices. See today's daily report for more.
Source: Bloomberg, C-MACC Analysis, July 2021