🔧 Oil Services
🔧 Oil Services
Oil services companies are the picks and shovels of energy. They don’t produce oil — they help others produce it. This creates a unique relationship: services often lead the upturn and lag the downturn.
Why services are different
Services move with E&P capital spending, not oil prices directly:
| Phase | E&P Behavior | Services Behavior |
|---|---|---|
| Oil rising | Announce budgets | Receive orders (revenue lags) |
| Capex committed | Spending begins | Revenue accelerates |
| Oil falling | Cut budgets | Backlog cushions, then falls |
Operational leverage
| Utilization | Margin Impact |
|---|---|
| Above 90% | Pricing power, expansion |
| 80-90% | Stable |
| Below 80% | Competition, compression |
ETFs compared
| ETF | Weighting | Expense | Focus |
|---|---|---|---|
| OIH | Market-cap | 0.35% | Large-cap services |
| XES | Equal-weight | 0.35% | Broader diversification |
| IEZ | Dow Jones | 0.40% | Similar to XES |
OIH vs XES
| Factor | OIH | XES |
|---|---|---|
| Top 3 concentration | ~41% | Lower |
| Liquidity | Higher | Lower |
| Small-cap exposure | Lower | Higher |
OIH for liquid trading; XES for broader diversification.
Major holdings
OIH is concentrated in three names:
| Company | Weight | Focus |
|---|---|---|
| Schlumberger (SLB) | ~20% | International, digital |
| Baker Hughes (BKR) | ~12% | Equipment |
| Halliburton (HAL) | ~8% | North American shale |
Reading the leaders:
- SLB leading = International strengthening
- HAL leading = North America accelerating
Key drivers
| Driver | Services Implication |
|---|---|
| Rig count rising 4+ weeks | Revenue growth coming (3-6 mo lag) |
| Day rates rising 10%+ YoY | Tight market, pricing power |
| E&P budget increases | Strong revenue growth coming |
| Utilization > 90% | Maximum pricing power |
Cycle position
Services often lead the turn:
- Oil stabilizes → E&P confidence builds
- Budget commitments → Services receive orders (OIH often bottoms here)
- Rig count inflects → Revenue accelerates
- Utilization hits 90%+ → Margins expand
- Peak utilization → OIH often peaks before oil
When to favor services
| Condition | Favor Services? |
|---|---|
| E&P budget increases | Yes |
| Rig count rising | Yes |
| Oil above $70 | Yes |
| Oil below $60 | No — cuts coming |
Quick reference
| Situation | Best Choice |
|---|---|
| Large-cap, liquid | OIH |
| Broader diversification | XES |
| Offshore focus | Individual names |
OIH is a capex cycle indicator, not just an oil play. Watch rig counts and E&P budgets.
For OIH/XOP ratio and capex cycle timing, see Energy Market Signals.
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