Oil services sector slips as oil wavers

Oil services companies, which depend on robust oil prices to fuel customer demand for drilling and other services, edged downward on Tuesday as oil prices fluctuated and an analyst predicted a spate of profit warnings from the sector.

Earlier in the day, oil prices fell as traders collected profits from crude oil's rally, but later in the afternoon prices inched back up. By midafternoon, benchmark crude for July delivery gained 15 cents to $68.74, advancing off Monday's close, the highest since November. Today's gain makes it the eighth-straight session that crude prices have rallied as hopes swell due to the weak dollar and expectations of economic recovery.

RBC Capital Markets analyst Kurt Hallead said in the near-term, oil services companies will likely deliver another round of downward revisions to earnings. However, continued strength in oil prices could provide a boost in the second half of the year, he added.

Hallead expects companies, namely Halliburton Co. and BJ Services Co., to give up price for utilization as they try to use the down-cycle to expand market share and eliminate their competition. He rates Halliburton "Outperform" with a price target of $27. Shares of Halliburton fell 23 cents to $23.70 in afternoon trading. Hallead rates BJ Services "Sector Perform" with a price target of $18. Shares of the company lost 29 cents to $16.10.

Dahlman Rose & Co. analyst Omar Nokta upgraded his view on offshore drilling stocks, based on expectations for increased spending by exploration and production companies as oil prices strengthen.

"Several smaller exploration and production companies have announced increased capital spending plans in recent weeks, which we point to as a strong signal that others will follow," Nokta said.

Nokta said the value oil services stocks currently represent "attractive entry points," even after the recent sector rally. He upgraded Ensco International Inc., Transocean Ltd. and Atwood Oceanics Inc. to "Buy" from "Hold." Shares of Ensco fell 55 cents to $40.73. Transocean shares dipped 5 cents to $83.38. Shares of Atwood rose 42 cents to $28.33.

Nokta reiterated "Buy" ratings for Noble Corp. and Diamond Offshore Drilling Inc. Shares of Noble slid 41 cents to $36.63. Diamond Offshore Drilling shares shed 80 cents to $88.36.