Piper Sandler analyst Derek Podhaizer cautioned in a note Monday that a recent, dramatic run-up in crude oil prices has not produced the broad rally in U.S. oilfield services shares that might normally be expected, and that the same forces that pushed prices higher could work in reverse.
Podhaizer observed that investors "did not chase the oil price spike," despite a near 40 percent jump in West Texas Intermediate over the past week. Instead of widespread gains among service providers, U.S. land services names were "flat to up low-single-digit," while Halliburton fell about 5 percent, which the analyst said was essentially in line with the -6% move in the OIH oil services ETF.
He identified two principal reasons for the subdued market response. First, positioning heading into the shock left many shares elevated: the OIH had already risen roughly 40 percent year-to-date, and specific subgroups such as pressure pumpers and land drillers were already significantly higher. Second, there is skepticism that exploration and production companies will rapidly accelerate activity in response to higher crude prices, given what Podhaizer described as the "new market dynamic of E&P capital discipline." He also noted the prominence of private operators in the current activity mix, saying private operators - "who are the most price sensitive" - make up 45 percent of the current rig count.
That combination of rich positioning and restrained E&P response underpins Podhaizer's concern that any near-term resolution to the conflict could trigger a sharp correction. As he warned, "if the conflict were to resolve sooner rather than later, oil prices would correct down just as hard as they spiked, resulting in a significant air pocket for the stocks."
Meanwhile, names with direct exposure to Middle East operations experienced larger declines, as risks rose with the conflict and the closure of the Strait of Hormuz. NESR fell 17 percent, and companies including WFRD, SLB, WHD and HP also saw notable drops as production was curtailed in Kuwait, Iraq, the UAE and Qatar.
Despite the lukewarm reaction from U.S. land services, Piper Sandler retains an expectation that those domestic-focused stocks will outperform while WTI remains elevated. Conversely, the firm expects companies with greater Middle East exposure to continue lagging so long as regional disruption persists.
Impacted sectors: oilfield services, exploration and production, regional oil producers in the Middle East.