What happened

Oil prices tumbled again today as they continue to bounce around following the collapse of an oil market support agreement between Russia and OPEC. WTI, the U.S. benchmark, fell nearly 5% by 3:15 p.m. EST on Wednesday, pressured in part by OPEC's forecast that oil demand won't grow this year because of the COVID-19 outbreak. 

That slump in oil prices weighed on most oil stocks today, including oil-field service companies. Several tumbled more than 10%, led by Core Labs (NYSE:CLB)TechnipFMC (NYSE:FTI)Nabors Industries (NYSE:NBR)NexTier Oilfield Solutions (NYSE: NEX), and Patterson-UTI Energy (NASDAQ:PTEN)

Pump jack and engineer against a winter sunset background.

Image source: Getty Images.

So what

Oil prices have crashed below $30 a barrel over the past week, forcing energy companies to take drastic action so that they can stay afloat during this turbulent time. Several producers have reduced their activity levels while many more are contemplating similar moves. These actions will have a direct impact on oil-field service companies.

The initial spending cuts have come from onshore-focused producers, which are dropping well completion crews and drilling rigs. Those actions will negatively impact companies like Nabors Industries, NexTier Oilfield Solutions, and Patterson-UTI Energy as they'll experience an almost-immediate decline in revenue as customers cut back on the services they provide. These companies will also likely have to reduce rates so that they can keep their remaining equipment working.

Offshore services providers like Core Labs and TechnipFMC, meanwhile, likely won't see as much of an immediate impact on their operations and financial results because it's not as easy to stop work on an offshore drilling project. However, customers will likely defer spending on projects they haven't yet started, which will impact their revenue and profitability in the coming quarters.

These issues could force oil-field service companies to take actions to reduce costs. Core Labs, for example, already slashed its dividend late last year after international activity levels didn't rebound as quickly as expected. Nabors Industries might need to cut its capital spending even further below 2019's number so that its financial situation doesn't deteriorate, given the likely upcoming weakness in its financial results. NexTier, Patterson-UTI, and TechnipFMC also will likely need to tighten their belts following the oil rout. 

Now what

The oil-field services sector was already on shaky ground before oil prices collapsed because many of their customers planned to reduce spending and activity levels this year so that they could generate free cash. They're now in worse shape because these customers will have to cut spending further so that they can live within their even more meager means. As a result, oil-field services stocks will likely remain under pressure until industry conditions improve, which could be quite some time even if OPEC starts supporting oil prices again.