May was a good month on many of the world’s stock exchanges. In the USA, the S&P 500 Index rose by 1.3 per cent, while Europe, measured by the MSCI Europe Index, rose by 0.6 per cent and the Nordic region, measured by the MSCI Nordic Countries Index, increased by 3.4 per cent. The Oslo Stock Exchange Mutual Fund Index rose by 5.9 per cent (all measured in local currencies).
Rig-driven upswing
After an extremely volatile start to the year,
oil service companies (measured by the US OSX Index) are once more at an
”all time high”. Rig companies have led the upswing, while seismic companies
have lagged behind. Many Norwegian oil service companies have also lagged
behind. Three factors in particular are worth noting in today’s market:
1) The price of oil has risen to new heights despite weaker GDP developments in Western economies. The demand is especially being driven by the level of activity and increase in prosperity in Asian countries.
2) The largest oil companies are struggling to achieve their production targets and to replace produced reserves. However, the high oil and gas prices are contributing to them reporting record-strong results and balance sheets. In line with the sharp rise in earnings, the budgets for future exploration and development work are also being increased.
3) A lot is also happening in the world’s national oil companies. Petrobras, with its promising finds in the Santos area off the coast of Brazil, is leading the fight to secure available rigs and is also increasing its exploration budgets sharply.
Against this backdrop, we are seeing hectic activity and strongly increasing demand for oil services in all segments. Most of the ”low hanging fruit” in the oil market has now been plucked. New finds are being made in areas without any infrastructure and more and more of the activities are taking place in deeper waters and in demanding reservoirs. The intensity and complexity of oil services have increased significantly.
