Key Points
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Global oil prices are experiencing significant volatility this year, and oil stocks have followed suit.
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Oil prices are down, but risks remain elevated, and prices could remain above pre-conflict levels for the foreseeable future.
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Upstream oil and gas companies are investing heavily over the next couple of years to boost efficiency and upgrade tools to manage complex reservoirs.
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Global oil markets have whipsawed this year amid rising geopolitical tensions. In late February, oil prices soared following U.S. and Israeli military strikes on Iran, sending shockwaves through the market. Brent crude surged as high as $138 per barrel as shipping lanes through the Strait of Hormuz came to a halt.
The prospect of a peace deal between the U.S. and Iran has sent oil prices plummeting over the past several weeks, and Brent crude is now hovering around $71 per barrel. Despite the crash, uncertainty surrounding the peace deal and future transit through the Strait of Hormuz remains; investors can take advantage of the recent dip to scoop up one oil stock right now.
SLB has tumbled 23% from its recent high
SLB (NYSE: SLB) provides oilfield services and technology, in other words, the equipment and software that is used by companies to find and extract oil and gas. While the company doesn’t own physical drilling rigs itself, its stock price is highly correlated with commodity price cycles, and the recent dip in oil prices has sent the stock down 23% from its recent high.
The company’s first-quarter results were dragged down by the conflict in Iran. While revenue increased 3% year over year, it fell 11% compared to the fourth quarter. Meanwhile, net income fell 6% year over year to $752 million. The decline was driven by disruptions in the Middle East as the company had to halt or scale down operations across the region to ensure the safety of its personnel and assets.
That said, management at SLB views the disruptions in the Middle East as temporary and has chosen not to reduce its cost base, preserving operational capacity as it prepares for a rebound. Management projects a broad-based recovery driven by structural supply rebalancing and remains optimistic about its outlook through the rest of this year and into 2028.
Longer-term demand is robust
Management anticipates that commodity prices will settle at higher levels than before the conflict. That’s because of supply-and-demand imbalances, with more than 500 barrels of production loss noted during its late-April earnings call. The company projects that the conflict could drive significant investment in building supply redundancies, inventory replenishment, and the development of local resources to boost resilience.
Upstream operators are shifting toward long-cycle deepwater developments, and management notes that the Final Investment Decision (FID) pipeline is over $100 billion. Because deepwater frontier basins across Latin America, Africa, and East Asia require technological solutions and multiyear lead times, SLB commands pricing power, and a firm FID pipeline indicates strong, committed future revenue.
SLB is an oil stock to buy on the dip
Oil and gas stocks are cyclical and highly correlated with oil prices, which have driven them down in recent weeks. The big risk to SLB is an ongoing slowdown in global oil demand and the risk of oversupply later this year, which could delay the offshore service spending rebound.
That said, oil is trading around $70 per barrel, above its pre-conflict level, and will likely remain elevated as countries replenish reserves used to buoy the market during the conflict. For investors looking to capitalize on the dip in oil stocks, SLB looks like a good buy today.
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Courtney Carlsen has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
