Shares of Baker Hughes (NYSE:BHGE) lost a massive 40% of their value through the first six months of 2020, according to data from S&P Global Market Intelligence. That number, however, is actually an improvement. At one point in the span, the oil services company's stock had lost roughly two-thirds of its value.
The big issue is oil demand. When COVID-19 started to work its way around the globe, countries effectively shut their economies to slow its spread. Demand for oil, logically, plummeted. The supply/demand dynamic was already tilted a little too far toward supply when 2020 began. So when demand fell off a cliff, energy markets were suddenly massively oversupplied and oil prices fell sharply. In fact, oil prices briefly fell below zero -- effectively meaning that oil drillers were paying customers to take their oil.
When oil prices are low, the energy sector reacts in a fairly predictable way -- drillers pull back on capital spending. That means less business for companies like Baker Hughes. To provide an idea of how bad the situation was, one-time charges pushed the company to a loss of $15.64 per share in the first quarter. And Baker Hughes' highly watched monthly rig count tally shows that the number of rigs operating globally was off by more than 50% year over year in June. The industry downturn is bad, and energy services companies like Baker Hughes are taking a big hit.
Excess oil has been piling up in storage and needs to be worked off before oil prices can mount a sustained recovery. Meanwhile, the economic reopening process will dictate how much oil is needed. That, in turn, will depend at least partially on the path COVID-19 takes. There are a lot of moving parts, and Baker Hughes doesn't have much control over what's going on. This is not an appropriate stock for conservative investors today, since COVID-19 cases are increasing again in key energy markets like China and the United States.