Crude oil prices are down 50% from peak prices around $130 per barrel back in 2022. This has been favorable for consumers, as the lower average oil price over the last couple of years has taken some of the sting out of the higher costs of retail goods that have prevailed over that period.
But recent market and political developments suggest that dynamic may soon be over. And if, as many industry analysts are predicting, oil prices take flight in the coming months, inflation could surge with renewed vigor, putting new pressure on multiple industries while benefiting a number of firms that play in the oil patch, like SLB Ltd. (SLB).
In the latest week, oil prices were up 11% from recent lows of around 56 dollars a barrel, with the catalyst being the imposition of U.S. sanctions on major Russian suppliers Rosneft and Lukoil over the ongoing war between Russia and Ukraine. The sanctions also prompted energy firms in China and India to consider cutting Russian imports, according to a Reuters news report.
The report quoted David Oxley, chief climate and commodities economist at Capital Economics, who said: “The announcement of sanctions by the U.S. on Rosneft and Lukoil is a major escalation in the targeting of Russia’s energy sector and could be a big enough shock to flip the global oil market into a deficit next year.” Russia accounts for around 7% of global oil supply.
Growing tensions between the U.S. and Venezuela—a country that holds the world’s largest proven crude-oil reserves—could also push oil prices higher, since a disruption of Venezuelan supply (or broader instability in the region) would add risk to global crude markets.
Yet another factor worth mentioning is that commercial traders in the petroleum industry (e.g., producers, refiners and merchants) are at one of their lowest net short positions in the crude oil futures market since 2010. As recently noted by market analyst Tom McClellan, past instances of this phenomenon have resulted in surging oil prices on a multi-month basis.
Moreover, as noted by Ole Hansen, head of commodity strategy at Saxo Bank, smaller speculators in the crude oil futures market have been increasing their short positions of late—a phenomenon which tends to be bullish for oil prices from a contrarian perspective.
Source: MacroMicro
Hansen stated in an October 21 report that, “[M]anaged money accounts have been reducing long exposure in recent weeks while adding to gross shorts, betting on further downside as inventories build and the curve softens,” with Brent crude data from the ICE Europe Exchange recently showing a jump in the gross short position for this class of trader (who are often on the wrong side of the market trend) to a 13-month high.
Why This Bodes Well for SLB Ltd. (SLB)
The bullish implications for oil drilling and exploration companies cannot be understated. Indeed, an improvement in the overall energy price outlook should be of benefit to the major producers going forward, in turn lifting the profit outlook for SLB Ltd. (SLB), the world’s largest oilfield services provider.
The significant rise in crude oil prices that I’m envisioning stands to incentivize oil and gas companies to increase exploration and production (E&P) spending—both onshore and offshore—which drives demand for SLB’s oilfield services and technology. That means more wells, more equipment and more services, in turn flowing to service contractors like SLB.
The company just released Q3 financial results, which played out in line with expectations, as revenue increased sequentially, plus further growth in its growing Digital segment and a “resilient performance” of its core business.
And while its key metrics were mixed, the company was sanguine on the year-ahead outlook and guided for improvements going forward, including a deepwater outlook that management said “remains easier to stay and easier to grow as a market.”
Concerning the highly significant Saudi Arabia outlook (a key revenue driver for the company), SLB said, “We have reached a stabilized activity, if not bottom,” while anticipating a likely rebound in the near to midterm, and with increased activity expected for the first half of 2026 for both gas and oil.
In the wake of the earnings report, SLB received several new share price upgrades from Wall Street institutions, including an upgrade from Piper Sandler from Neutral to Overweight. The ratings improvement was in part predicated on SLB’s improving Saudi Arabia outlook, which Piper Sandler called “a significant improvement for its rate-of-change story,” in view of the company’s size and scale in that country.
And while Deepwater offshore has been a headwind for SLB’s earnings in recent quarters, the investment bank said that while an “inflection is not expected until mid-to-late 2026,” SLB’s management believe the company’s “healthy pipeline with favorable economics” (due to a number of final investment decisions planned for 2026 and early 2027) should help improvement the outlook for that segment.
All told, increased E&P spending in the wake of anticipated higher crude prices, with resulting improved margins, better utilization and positive sentiment, should combine to lift SLB’s earnings outlook and share price in the coming quarters. As such, I see it as a worthwhile play on what looks like the end of the low crude prices that end-users and consumers alike have taken for granted.
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