To: drsvelte who wrote (36427 ) 2/1/1999 12:14:00 PM From: drsvelte Respond to
From Briefing.comOILFIELD SERVICES. Continuing weak global economies have oil prices down and out. Oil companies and the companies that service them have seen their profits hit hard as a result. This morning, Morgan Stanley Dean Witter is downgrading the oilfield services stocks. In essence, they are saying that a strong enough rebound in profits for the oil business such that it would produce a rising rate of orders for the services business just isn't imminent. They have downgraded 14 stocks from "strong buy" to either "outperform" or down two notches to "neutral" while also lowering two stocks from "outperform" to "neutral," as shown on Briefing.com's upgrades/downgrades page. Some of the stocks downgraded two levels include R&B Falcon (FLC), Marine Drilling (MRL), and Cooper Cameron (RON). The problem for this sector, of course, is weak oil prices. With Japan and Asia in recession, and emerging markets extremely weak, there simply isn't enough demand for oil to reverse the downward slope in prices. While the oil producers such as Mobil or Texaco will benefit directly if oil prices rebound, the services industry needs a stronger, sustained rebound before their businesses will benefit. After all, just because business picks up at the oil manufacturing level doesn't mean demand for services will correspondingly pick up. Profits for the major oil companies are down sharply, and they will keep a tight lid on expenses even if profits rebound sharply to where they were previously. After all, they want profit growth. The services industry is next in line. Therefore, it will take not only a rebound in the price of oil, but time, before the services industry will a return to previous levels of profitability. Of course, if oil prices do rebound, the market may anticipate a profit rebound in the services sector - or it may not. There are thus several scenarios - oil prices fall further, oil prices stay flat, and oil prices rebound. The outlook for the oil services industry is only OK under the last one. Even then, prices must rebound significantly, and stay higher. The chances of that isn't enough to keep a high rating on these stocks, and Briefing.com on December 2 dropped our rating on the sector to 4 (underperform). It is hard to get excited about these stocks while oil prices show no prospects of anything other than a slight firming.
