⛳Can oil service companies tailwind continues?🔦

It has been a splendid period for oil services and equipment companies as they ride on yet another oil boom. This helps to support their product prices and enhance their profit margins. Indeed, with a supportive macro environment, investors are warming to the industry stocks again. 

Among some names are Halliburton (HAL), Schlumberger (SLB) and Baker Hughes (BKR), where earnings will arrive this week. HAL is probably today. These companies saw a tremendous return for the year as demand for oil returned. It is also likely to set up a high bar for earnings. 

If we look back to the past, these companies had trimmed their overhead costs for the past years and accelerated further during the height of the pandemic. New drills were put on hold as oil prices make such activity less lucrative. 

As oil prices rebound, there is growing interest to expand production. Private operators quickly add more rigs as some point to the rising number of rig counts in the US. Nonetheless, as with high hope is a potential for disappointment too. Hence, Pika World suggests investors look at possible guidance for the second half of the year for clearer visibility if such a rosy trend can persist.

💈China, the spread of new economic risk⏱

As other parts of the world reopen, China is back into lockdown in significant cities. Researchers are trying to estimate the cost of the damage, but it is proving to be an uphill task. For some analysts, it is the work of an “inexact science” since human behaviour is sometimes called “slippery”. 

Indeed, around 400 million people in China are experiencing at least a partial lockdown as local officials hurried to stop the spread of the virus in the period where there is once a decade leadership reshuffle. 

While public health costs are likely to be lower in China compared to other more open societies, China has embarked on the expensive PCR swabbing. The rapid construction of isolation facilities and hospitals adds up to the total bill. This includes the need for an army of workers in tracking suspected cases and enforce lockdown regulations. 

Businesses are badly hit, too, as factories are forced to shut down, and ports services are interrupted. As a result, consumer spending is likely to sharply moderate. Already, we are seeing China’s manufacturing activity plunging to a two year low, and ports are more congested than before, where some points to Shanghai’s port volume dropping by 40% on a weekly basis.

A combination of fiscal and monetary policy is likely to help soften short term downward pressure on the economy, where Pika World sees the electronic and consumer durables stocks as the most badly hit in this trying period.