Few companies can measure the pulse of the oil market better than National Oilwell Varco (NOV -0.80%). As the oil industry's leading equipment maker, it knows precisely where oilfield service companies are spending money on drilling projects for their producing customers. From that perspective, it can provide investors with a detailed glimpse at what's going on in the oil market. That's what its well-respected CEO Clay Williams did on the company's first-quarter conference call, where he outlined nine trends his company sees developing in the oil market.

1. Pressure pumping is under pressure

Williams started by saying, "in response to the uncertain outlook, our pressure pumping customers (in North America) stopped ordering and scaled back maintenance at the end of 2018 leading to a 58% sequential decline in US pressure pumping sales." Pressure pumping activities -- which is the fracking of new wells -- plunged during the first quarter due to the slump in oil prices at the end of last year. On a more positive note, however, "international markets, in contrast, are strengthening as demand for higher capacity coiled tubing, wireline, and pressure pumping units rises." This trend suggests that oilfield service companies focused on North America will struggle, while those with international operations are in a better position.

A ship near an offshore drilling rig at sunset.

Image source: Getty Images.

2. The drilling slowdown is impacting pricing

Next, Williams stated that "slowing drilling activity in North America and overcapacity is driving the price down on certain downhole tools, surface equipment, and rig site services." This trend will likely impact oilfield equipment makers, which could experience weaker profitability until drilling starts rebounding.

3. Offshore pipe demand is picking up

Williams continued by pointing out that "drill pipe demand is shifting from land to offshore." While National Oilwell Varco experienced a notable slump in orders and deliveries for new drill pipe in the onshore-focused areas of North America, "international and offshore markets are moving the other way." Further, he noted that "three-fourths of our sales prospects are now coming from offshore drillers who need to put drill pipe on rigs to reactivate them." That's not only "good news for NOV" but for offshore drilling stocks, since it appears that rig demand is on the upswing.

4. Land rig upgrades are on hold

"Fourth," Williams stated, "the recent capital austerity and decline in the active US land rig count is driving a temporary halt in land rig upgrade programs." That's noteworthy because one of the drivers of the improved drilling efficiency in U.S. shale plays has been the increased usage of upgraded rigs. That has benefited drilling contractors, since they can charge higher dayrates for these rigs. However, after "having picked the low-hanging fruit over the past few years, drillers are being cautious about spending up to half of the cost of a new rig to upgrade an older DC rig to high-spec AC given sliding drilling activity and flat-to-slightly declining rig day rates." This trend implies that the profitability of onshore drillers could be under pressure in the coming quarters.

5. Offshore rig activations are on the rise

"Number five," Williams noted, was that the "pace of rig special surveys and reactivations for offshore rigs is heading in the other direction. The active project pipeline we are working on has increased 30% over the past few quarters, and today we are working on more than 30 offshore rig projects, 20 of which are reactivations of stacked rigs, helping these rig owners make their assets operationally ready to bid on the rising number of rig tenders offshore." This trend also bodes well for offshore drilling stocks.

6. The Permian Basin's next problem

Next, Williams stated that "water handling and disposal is an emerging bottleneck in the Permian Basin" because "produced saltwater and steel don't get along well." In other words, the water that flows back from fracking needs proper infrastructure to handle it as the industry continues growing, which includes using composite pipes as opposed to steel. That's not only an "area that NOV is very well positioned in to capitalize on" but one that should benefit midstream companies focused on gathering and processing this produced water.

A drilling rig at sunset.

Image source: Getty Images.

7. Upending the old order

"Seven," Williams continued, is that "North American operators are keenly focused on completions and new technology and value are upsetting the old order of things." Oil and gas producers are laser focused on improving drilling returns. Not only are they using data to drive higher profits, but they're "open to trying new tools and technologies that can offer meaningful impact on their development costs and risks." That's leading many to partner with National Oilwell Varco to cut costs, which is driving growth in its higher-margin products that yield improved well results.

8. The eastern hemisphere is coming back

"Number eight," Williams noted, "following a slow first quarter start, the eastern hemisphere may be shaping up for incremental growth as the year unfolds." This increase in demand from international markets is helping offset the weakness in North America. In particular, the company noted that places like India and the Middle East are beginning to purchase the new technologies it developed for the North American market.

9. Subsea is starting to show some green shoots

Finally, Williams stated that "our subsea production business remained challenged in the first quarter. While things are looking up, it continues to be a slow grind." However, on a more positive note: "first quarter orders were higher than they've been in a year, and a customer and project mix is pointing to more greenfield projects. We also expect second quarter orders from subsea projects to be strong, and we're encouraged by the improving outlook for LNG projects globally." This trend suggests that companies focused on providing subsea products and services will likely continue struggling in the near term, though better days appear to be ahead.

Identifying the likely winners and losers

National Oilwell Varco's CEO gave investors a clear picture of what's happening in the oil market. They can glean two key themes from his comments. First, drilling contractors and service companies focused on the North American land market will likely struggle in the coming quarters due to the recent oil price-inspired decline in activity. However, offshore-focused companies, as well as those with international exposure, should experience improved results in the coming quarters as those markets start rebounding from a multiyear slump. These comments should help investors know where to look for the best opportunities in the oilfield services and equipment market this year as well as what stocks to avoid.