Trading drillers while relying on technical charts is like driving your car forward at a high speed while watching the road in your rearview mirror.
When it comes to the oil service sector, especially the drillers, throw the charts away. Pay attention to supply versus demand. Look hard and long at management, the drilling fleet, and the balance sheet. Try to imagine how the world economy will be in the next few years. Ask when will the excessive rigs be scrapped? When will the demand for rigs exceed the availability? Will the Artic and the Antarctic ever be opened for drilling? When will we see peak oil? When will production match demand? When will the extra crude now in storage be removed? Is the world moving away from crude towards natural gas? And about a thousand more question.
None of these answers can be found studying past performance charts. Charts are excellent for manufacturing, but worthless for oil service companies.
I see nothing going forward that leads me to believe that WTI will stay much above $60 until mid-2016. The world economy sucks. Supply is in excess. Demand is not rising. OPEC pledges not to regulate supply.
With no one is willing to cut back, the only regulation of supply is price governed by demand. Such a scheme will cause prices to stay right where they are until demand exceeds supply. Only demand can cause prices to rise and then only until excess supply lowers them back down again. In other words, we are entering a new era when prices will bounce up and down like a cheap Chinese yo-yo.
Oil service investors need to reassess the tools they use for making trading decisions. Best bet is to throw the technical charts in the garbage and stick to the fundamentals.
As far the present, it looks like a lot of new blood wants to get into the oil service sector before share price rises much higher. This new blood will hang around a few months, get disappointed and then run back to their old favorite stocks.
Don't be surprised if WTI drops back to $50 and SDRL to $11.
