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Why Schlumberger Stock Surged 15.8% in May

By Matthew DiLallo - Jun 7, 2021 at 9:01AM

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Higher oil prices are fueling increased optimism in the oilfield services stock.

What happened

Shares of Schlumberger (SLB 0.68%) surged 15.8% in May, according to data provided by S&P Global Market Intelligence. Fueling the oil stock was the continued improvement in oil prices. That's making analysts increasingly optimistic about what's ahead for the company.   

So what

Brent, the global oil price benchmark, finished May near $70 a barrel. Dual catalysts pushed crude prices higher. First, demand is steadily improving as vaccines roll out, enabling the global economy to get back to normal. Meanwhile, OPEC and its partners continue holding back supply, allowing the economy to burn off excess inventory. 

Oil field worker with a laptop at sunset.

Image source: Getty Images.

Those improving market fundamentals have analysts growing increasingly optimistic about the oilfield services sector. For example, CFRA noted last month that it sees upstream oil and gas spending picking up in the coming quarters as oil companies start drilling more wells in anticipation of growing demand. That should benefit oilfield service companies like Schlumberger, which CFRA noted last month had the most favorable exposure to performance-based contracts. That would give it a share of the producer's gains when the projects it works on come online. 

Goldman Sachs also made some optimistic remarks on the future of the oilfield services sector last month. It noted that several companies were starting to look attractive, given the upside ahead as their customers ramp up spending. That led the investment bank to initiate a buy rating on Schlumberger.  

Now what

Analysts aren't the only ones who see better days ahead. In early June, Schlumberger's CEO spoke at an industry conference. "With oil demand projected to reach pre-2019 levels by the end of 2022 and supply tightening, our oil and gas business is on the verge of an exceptional growth cycle," he said. "Given our unique position and strategy, we are positioned to deliver outstanding returns in the short and medium term." Those comments fueled a further rally in its stock.

Given what appears to lie ahead, Schlumberger's stock might have further to run. The oilfield services sector seems to be in the early days of recovery. As oil producers ramp up spending on new wells, it should boost the company's bottom line. That earnings growth could drive shares higher in the coming quarters. That makes Schlumberger look like a potentially compelling oil stock for those seeking a way to play in the industry's rebound.

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

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