9 Things This Well-Respected Oil CEO Wants Investors to Know About the Oil Market

The Motley Fool | Matthew DiLallo | May 20, 2019

Few companies can measure the pulse of the oil market better than National Oilwell Varco (NYSE:NOV). As the oil industry's leading equipment maker, it knows precisely where oilfield service companies are spending money on drilling projects for their producing customers. From that perspective, it can provide investors with a detailed glimpse at what's going on in the oil market. That's what its well-respected CEO Clay Williams did on the company's first-quarter conference call, where he outlined nine trends his company sees developing in the oil market.

1. Pressure pumping is under pressure

Williams started by saying, "in response to the uncertain outlook, our pressure pumping customers (in North America) stopped ordering and scaled back maintenance at the end of 2018 leading to a 58% sequential decline in US pressure pumping sales." Pressure pumping activities -- which is the fracking of new wells -- plunged during the first quarter due to the slump in oil prices at the end of last year. On a more positive note, however, "international markets, in contrast, are strengthening as demand for higher capacity coiled tubing, wireline, and pressure pumping units rises." This trend suggests that oilfield service companies focused on North America will struggle, while those with international operations are in a better position.

A ship near an offshore drilling rig at sunset.Image source: Getty Images.

2. The drilling slowdown is impacting pricing

Next, Williams stated that "slowing drilling activity in North America and overcapacity is driving the price down on certain downhole tools, surface equipment, and rig site services." This trend will likely impact oilfield equipment makers, which could experience weaker profitability until drilling starts rebounding.

3. Offshore pipe demand is picking up

Williams continued by pointing out that "drill pipe demand is shifting from land to offshore." While National Oilwell Varco experienced a notable slump in orders and deliveries for new drill pipe in the onshore-focused areas of North America, "international and offshore markets are moving the other way." Further, he noted that "three-fourths of our sales prospects are now coming from offshore drillers who need to put drill pipe on rigs to reactivate them." That's not only "good news for NOV" but for offshore drilling stocks, since it appears that rig demand is on the upswing.

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