Wells Fargo Expects Prolonged Stagnation in Oil Prices

Wells Fargo’s securities team downgraded on Friday their ratings on the stocks of three U.S. oil field services companies, expecting a “prolonged stagnation” in oil prices ahead that could affect oil and gas companies’ investment decisions.

Wells Fargo’s Jud Bailey and his team downgraded Helmerich & Payne (NYSE:HP), Nabors Industries (NYSE:NBR), and Oil States International (NYSE:OIS) in view of an “unexpected glut” as U.S. shale output increasingly disrupts global balances, Barron’s reports, citing the Wells Fargo note.

“With meaningful reductions to our international spending and margin outlook and a growing disparity forecasted in the US between rig count and stage count beginning in 2H17, we are making several changes to our OFS rankings and ratings. Most notably, we are i) downgrading HP to Underperform (from Market Perform) and NBR to Market Perform (from Outperform), ii) downgrading OIS to Market Perform From Outperform,” Wells Fargo says.

The analysts, however, kept their Outperform rating on Halliburton (NYSE:HAL) and Schlumberger (NYSE:SLB), and Market Perform on National Oilwell Varco (NYSE:NOV).

Wells Fargo’s downgrades today are the latest in a string of downgrades by Seaport Global Securities LLC, Barclays Plc, Morgan Stanley, Macquarie Capital Ltd, and Capital One Securities—all of which have recently downgraded a slew of big oil companies, explorers, oilfield service providers, and other E&P companies as the sentiment in the oil market turned more and more bearish.

Related: Saudis Refuse To Relinquish Grip On Key Asian Market

Since the OPEC deal that helped prop up oil prices at the beginning of this year, U.S. shale has been increasing production faster than most analysts had expected. Rising output from the U.S. is undermining OPEC’s cuts, and the shale industry is now once again putting downward pressure on oil prices. Drilling costs are actually on the rise again because the market for oilfield services (rigs, equipment and fracking crews) is growing tighter.

But with Wells Fargo’s expectations of a prolonged stagnation in oil prices, oil field services companies and their stocks may feel the pinch (again) of reduced investment and spending by the oil companies.

By Tsvetana Paraskova for Oilprice.com

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