What's going on?
US oilfield services company Halliburton tapped into a better-than-expected quarterly profit on Monday – and its stock lifted 8%.
What does this mean?
Halliburton’s profit beat forecasts, although it slipped from the same time last year. And while the firm just missed total revenue expectations, its international revenue grew 12% – and helped offset a 13% sales decline in North America.
Rival Schlumberger’s Friday results followed the same trend: the heavy hitter reported growth in international revenue and shrinkage in North America, while the firm’s overall revenue beat expectations.
Why should I care?
For markets: The price of oil makes the wheels turn.
When the oil price is high, oilfield services companies’ customers are incentivized to speed up production. For Halliburton and Schlumberger, then, a higher oil price means more sales – and more profit. But when the oil price is low (like at the tail end of 2018), there’s less cash to play for and those profits take a spill. Though it’s not managed to hit 2018’s earlier highs, the oil price has been recovering this year, which has in turn bolstered drilling activity both in the US and overseas. Even so, American oil and gas firms have been spending less on production and growth and more on rewarding shareholders with buybacks and dividends – which doesn’t much help oilfield services companies.
Zooming out: Oil supplies are feeling the pressure.
A few factors this year have threatened oil supplies and led to rising prices – chief among them US sanctions on Iran and a decision by OPEC (a group of major oil-producing countries) to keep curbing global oil production. And just last week, Iran seized a British oil tanker in the Persian Gulf. The UK government has threatened to take action if it isn’t released, but what happens next will largely fall to the new prime minister, due to be named later on Tuesday. All eyes will be on their first major act in office…