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Morgan Stanley Calls Bottom In Oil Services

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Morgan Stanley Calls Bottom In Oil Services

One the hottest topics of debate on Wall Street in recent months has been calling the bottom in the oil and gas space. According to a new report released Thursday by Morgan Stanley Research analyst, Ole Slorer, the tide is finally starting to turn for global oil services stocks.

Retest

The PHLX Oil Service Sector (INDEX: OSX) index recently experienced a retest of its previous March lows. Slorer explained that this type of retest has been a common occurrence during previous oil downturns and is often driven by sentiment and/or market volatility.

Given the recent price dip, Morgan Stanley now sees a very favorable risk/reward balance for investors, and Slorer sees up to 60 percent upside in the space over the next 6–9 months with only about 10 percent downside risk.

Related Link: What Happened To Oil Prices

Higher Oil Prices On The Way

Morgan Stanley believes that much higher oil prices are needed to balance the oil market in the long term and sees the current $50–60/bbl environment as unsustainable. “Although $60 WTI is sufficient to deliver an incremental 2 mmb/d of shale production through 2020, additional production requires $80–100/bbl,” Slorer explained.

Slorer sees $90/bbl as the long-term Brent price that is necessary to balance the market.

Green Shoots

Morgan Stanley has begun to see signs that global oil production is getting under control. U.S. rig counts appear to have stabilized well below the level necessary to sustain production, Brazil production was recently revised well below consensus expectations, and a close look at Iran indicates that legacy fields will likely not witness a robust recovery.

Stock Picks

With earnings season set to kick off for the oil services industry next Friday, Morgan Stanley likes Schlumberger Limited. (NYSE: SLB) as its top stock pick in the space.

In addition, the firm likes:

  • Core Laboratories N.V. (NYSE: CLB)
  • Frank’s International NV (NYSE: FI)
  • Patterson-UTI Energy, Inc. (NASDAQ: PTEN)
  • Nabors Industries Ltd. (NYSE: NBR)
  • Helmerich & Payne, Inc. (NYSE: HP)

Image Credit: Public Domain

Latest Ratings for SLB

DateFirmActionFromTo
Feb 2021Piper SandlerMaintainsNeutral
Jan 2021Credit SuisseMaintainsNeutral
Jan 2021Morgan StanleyMaintainsOverweight

View More Analyst Ratings for SLB
View the Latest Analyst Ratings

 

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