Oil Service Stock Up 17.9% in First Big Rally Since ’83
Investors seeking bargains in a bull market have given stocks of oil service companies their first big rally since 1983, with prices up an average of almost 18% over the past two weeks.
Not only are oil service stocks riding a general market upsurge, they are also benefiting from the OPEC agreement last month that has led to a rise in oil prices and spurred hope that an increase in drilling will follow.
In the two weeks between Dec. 31 and Jan. 14, oil service stocks have more than doubled the overall market gain, according to Standard & Poor’s, which shows an 8.5% increase in the composite index for 500 stocks compared to a 17.9% increase in the index that monitors oil well equipment and services firms.
In Southern California, the three largest oil service firms saw price hikes average 21% for the two weeks.
“This is the most important rally in years,” said Wayne Whipple, a vice president and oil analyst with Merrill Lynch.
Like some other analysts, Whipple said that some investors who have watched oil service stocks tumble since the early 1980s now seem confident that the worst is over.
Analysts say, however, that the stocks probably won’t rise much more unless there is another significant boost in the price of crude oil, which has risen to about $19 per barrel from $17 in the last two weeks.
The last major--though short-lived--price increase in oil service stocks took place in the summer of 1983 in expectation of drilling in the Gulf of Mexico. Since then, oil service industry stock prices have plunged with the emergence of a worldwide oil glut.
This time, analysts and oil industry officials link the stock price rally to new investor confidence in OPEC’s ability to limit oil production and buttress oil prices to a level that makes drilling economical.
“It appears to all of us that the OPEC nations have managed to reach an accord,” said Walter Benjamin (Bennie) Reinhold, chairman and chief executive of Varco International, an oil field services firm in the City of Orange.
But Jim Woods, president of Baker International, also in Orange, said he and the customers who use his company’s products still are skeptical that today’s oil prices will last. “It will take a good six months before the customer community believes it,” he said. “There are no large orders coming in today.”
At Varco, the common stock has risen 35%--from $2.50 per share at the close of trade on Dec. 31, to $3.375 a share at the market close Thursday. The company’s preferred stock increased 25% to $10 per share from from $8 in the same period.
Irvine-based Smith International--which is in the midst of a Chapter 11 reorganization--posted the smallest gain as its common shares rose 5.5% to $4.75 from $4.50.
