What happened?
Today's a good day to own stocks of all kinds. It's incredibly good for oil stock investors, with many companies in the oil patch seeing their shares rocket higher than the 2.5% gains the S&P 500 is enjoying so far.
One group of oil stocks in particular is surging today: oilfield services companies. Here is a round dozen that are all up 5% or more:
| Oilfield services company | Price change on 6/5/20 |
|---|---|
| NOW, Inc. (DNOW 3.90%) | 14.9% |
| Halliburton Company (HAL 0.20%) | 10.2% |
| Helix Energy Solutions Group, Inc. (HLX 1.64%) | 20.6% |
| Liberty Oilfield Services, Inc. (LBRT 3.70%) | 14.9% |
| Nextier Oilfield Solutions, Inc. (NEX +0.00%) | 14.2% |
| National-Oilwell Varco, Inc. (NOV 1.98%) | 8.9% |
| Oceaneering International, Inc. (OII 0.61%) | 10.2% |
| Oil States International, Inc. (OIS 2.01%) | 16.4% |
| Propetro Holding Corp (PUMP 1.51%) | 9.55% |
| RPC, Inc. (RES +0.33%) | 10.9% |
| Schlumberger N.V. (SLB 1.05%) | 7.4% |
| Core Laboratories N.V. (CLB +0.00%) | 13.5% |
As of 2:39 p.m. EDT. Data Source: YCharts.
So what
Oil stocks are getting a boost for the same reason most stocks are today: positive news on the jobs front. According to the latest Department of Labor report, U.S. employers added 2.5 million people to their payrolls in May, mostly in retail, restaurants, and other service jobs that were lost during the government-ordered lockdown to slow the spread of COVID-19 in March and April.
Image source: Getty Images.
This signals what many investors have expected: The economy could recover quickly from the sharp, deep fall into recession that crashed oil prices and demand and saw some 30 million Americans file for unemployment. As millions of those who have lost work return to their jobs, there is hope that the worst is over for the oil sector, which has struggled with the biggest collapse in demand in history.
In addition to some positive news for the economy, there's more potential good news on the way. OPEC+ is set to meet this weekend, and the expectation is that the group, led by Saudi Arabia and Russia, will agree to hold firm on current oil output levels for at least another month.
Now what
Between unexpectedly strong jobs numbers that indicate the economy could indeed experience a "v-shaped" recovery, and global oil giant OPEC+ indicating it will continue to stabilize the market, investors are optimistic about oil companies, and hopeful that the worst could be over.
And that's certainly possible, but investors should continue to step carefully in the oil patch. The companies above make a living providing a variety of services to the oil and gas sector, and the reality on the ground continues to support very limited spending in the weeks and months ahead.
After all, there is still a large oversupply of oil; U.S. commercial storage was at 532 million barrels last week, 12% above the five-year average, and global oil inventories have increased by some 1 billion barrels over recent months. In the U.S., gasoline and diesel inventory increased far more than the 2.3 million-barrel drawdown in crude.
It's nice to see some optimism, but today's upward move looks to be a lot of investors looking to get in ahead of the actual recovery. With oil prices still in the $30s, oil producers are unlikely to ramp up spending ahead of more proof that demand is bouncing back.
And that reality on the ground means it's still a tough time to be in the oilfield services business. Until there is clear evidence that the supply and demand balance is coming inline, and oil prices recover enough to support a recovery in activity, investors should be cautious in this subsector of the oil and gas business.
