Please ensure Javascript is enabled for purposes of website accessibility

Why Oceaneering International Stock Rose as Much as 10% Today

By Reuben Gregg Brewer – May 28, 2020 at 4:09PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The energy services company gained as oil news brightened and at least one Wall Street shop updated its view of the stock

What happened

Shares of energy services company Oceaneering International (OII -1.73%) rose steadily through the day, briefly peaking above 10% before settling to a 4.3% gain on Thursday. There was no news out of the company, but some key oil sector trends coupled with an updated price target from Bank of America Global Research provided ample reason for investors to get excited.   

So what

Oceaneering International provides services, such as drilling and completion, to offshore oil drillers. The recent downturn in oil prices has been particularly brutal because the supply/demand imbalance today is being driven by both sides of the equation. Excess supply has been building for years because of U.S. onshore drilling growth, but was compounded by a recent price spat between OPEC and Russia. They've since resolved the dispute, but it led to increased supply right when the COVID-19 pandemic was causing countries around the world to shut down. That resulted in a plunge in demand pushing oil prices to historic lows. 

An offshore drilling rig

Image source: Getty Images

The energy sector has reacted in typical fashion by cutting back on capital spending plans. The pullback has shown up particularly rapidly in the U.S. onshore space, with the U.S. Energy Information Administration noting that there are fewer drilling rigs working today than ever before in its data.

And while the amount of oil in storage ebbs and flows, the trend appears to be that all the extra oil in storage (put there because of the sharp drop in demand due to COVID-19) is starting to get used. The fact that countries around the world are starting to reopen their economies is a big help on this front, but it also means that the oil being pulled from the ground today is no longer compounding the oversupply problem. All in all, things are starting to look better for oil companies and those like Oceaneering International that serve them.   

With the outlook starting to improve, it's not surprising that Wall Street is suddenly reconsidering the story here. In Oceaneering International's case, Bank of America Global Research just upped its price target for the stock by a hefty 25%. And since this particular energy services company doesn't primarily serve the U.S. onshore market, where spending cuts have been swift and deep, it does indeed look like it could avoid the worst of the drilling pullback.   

Now what

After the quick price jump, the stock is trading above Bank of America's $6 target. And despite the positive news on the oil front, energy prices remain historically low. Basically, the industry is still working through a rough patch, and one good day for the industry (or an individual stock) could just as easily be followed by a bad one. Expect investor mood swings to keep prices in the energy space, including for services companies like Oceaneering International, on the volatile side for a while.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool recommends Oceaneering International. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Oceaneering International, Inc. Stock Quote
Oceaneering International, Inc.
OII
$7.96 (-1.73%) $0.14

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
326%
 
S&P 500 Returns
102%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/03/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.