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Why RigNet Stock Is Slumping Today

By Matthew DiLallo – Updated Jun 14, 2019 at 2:37PM

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Slowing growth in oil demand hurts a supplier to offshore drillers.

What happened

Shares of RigNet (RNET) had tumbled more than 10% by 2:30 p.m. EDT on Friday. The sell-off didn't have any apparent cause since oil prices were up slightly on the day and RigNet didn't have any news to weigh on its stock. Instead, the driver seemed to be the continued concerns about the oil market, which have pushed shares of the company, which provides remote-communications services, down more than 35% this year.

So what

After rebounding in the early part of the year, oil prices have tumbled over the past few weeks into another bear market. The main issue weighing on crude is demand growth, which is starting to slow with the global economy. As a result, both OPEC and the International Energy Agency (IEA) have recently reduced their oil demand outlook. In the IEA's case, it cut its estimate for demand growth by another 100,000 barrels per day as it becomes increasingly concerned about sluggish economic growth.

Oil platform and tanker ship on offshore area at sunset.

Image source: Getty Images.

With oil demand weakening, it likely means that oil companies won't need to provide the market with as much supply in the coming months. As such, they might reduce spending on new oil projects, including those served by offshore rigs using RigNet's remote communications systems. That could hurt the company's financial results, which had been improving in recent quarters.

Now what

RigNet has struggled over the past few years due to the continued volatility of oil prices, which has slowed the pace at which oil companies approve new drilling projects. While the offshore drilling industry has started showing signs of life in 2019, those prospects could quickly dim if growth in oil demand continues slowing. That would likely put even more downward pressure on the stock price.

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool recommends RigNet. The Motley Fool has a disclosure policy.

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