Why Schlumberger Stock Dropped 12.1% in November

MarketsMotley Fool

What happened

Shares of the world's largest oil-field services company, Schlumberger (NYSE: SLB), fell 12.1% in November, according to data provided by S&P Global Market Intelligence. That was relatively consistent with the overall oil-field services industry, as measured by the SPDR Oil & Gas Equipment and Services ETF, which fell 12.7% for the month.

Continue Reading Below

Schlumberger's performance was also middle-of-the-pack when compared to its biggest rivals. It underperformed Halliburton, whose shares declined just 9.4% in November, but outperformed Baker Hughes, a GE Company, which saw its stock fall 14.5%.

So what

Schlumberger had posted reasonably strong results for Q3 2018, which it reported in mid-October. Specifically, investors were concerned about its opportunities in the North American market. North America had been the biggest growth market for Schlumberger, but in Q3, the company's international revenue growth outpaced North American revenue growth for the first time since 2014. That's thanks to capacity constraints in the Permian Basin and fracking industry weakness.

However, for an oil-field services company, the price of oil is king. As the price goes up and drilling becomes more profitable, there's more demand for Schlumberger's services. But if oil prices decline -- which they did in November, by about 22% -- oil producers make less money, resulting in tighter margins, fewer green-lighted projects, and less money overall to spend on Schlumberger's services.

Now what

It's unclear where the oil market is heading right now. OPEC and Russia just announced a production cut of 1.2 million barrels per day, which ought to tighten up supply and increase prices. But after the announcement, there seemed to be confusion about the details: No quotas were specified for each member nation, and Iran claimed it had received an exemption from the production cuts altogether. In other words, the current supply glut that's driving down oil prices may well continue. Even if OPEC does successfully cut production, increasing U.S. supply could help to fill in the gap.

However, it's important to take the long view with a company like Schlumberger, which is predicting an oil and gas spending boom in the coming years. Long-term trends seem to be on Schlumberger's side, so I wouldn't make any investing decisions based on short-term fluctuations in the price of oil.

10 stocks we like better than SchlumbergerWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Schlumberger wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of November 14, 2018

John Bromels 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.