Sector movers: Oil services bear the brunt of OPEC decision as outlook sours

28th Nov 2014 14:03

Oil-related stocks were continuing to feel the impact from a recent plunge in crude prices on Friday, though companies in the energy-services sector were bearing the brunt of the selling pressure.The Organization of Petroleum Exporting Countries (OPEC) decided on Thursday not to scale back their production target of 30m barrels per day despite a supply glut.OPEC was resisting to calls to cut output, with US shale producers currently growing production at a rapid pace.Brent crude edged higher to around $73 a barrel after dropping by as much as 7% on Thursday, its worst one-day slide in three years.Companies that provide things like engineering and maintenance to the oil and gas industry were suffering heavy losses on Friday afternoon amid fears that a prolonged period of depressed oil prices will lead to a scaling back of project spend."We cannot see a floor to the oil price at the moment, but that is only partially due to the fundamentals. Oil is in the hands of the speculators," said Brewin Dolphin analyst Iain Armstrong."The message from OPEC was fairly clear - we are not hurting yet because we are the lowest cost producers. As Brewin Dolphin has said before, it is a question of who blinks first - OPEC or the US shale producers," he said.Armstrong said that if oil continues to trade at current levels, the "greater the chance a US shale producer will go under".London-listed oil services stocks such as Hunting, Lamprell, Wood Group and Amec Foster Wheeler were all falling at least 6% each.Others were registering smaller losses, such as Gulf Marine Services , Mycelx Technologies, KBC Advanced Technologies and Petrofac.Goldman Sachs said it expects WTI crude to average $74 in 2015, "with the price falling to the level required to force shale to reduce output, in a world where there is oversupply and shale is the new marginal producer".The bank's commodities team predicts that WTI will recover to $80 in 2016, but said they "also see risk of overshooting to the downside".At current capital expenditure (capex) budgets for 2015, European integrated oil producers require an Brent oil price of $122 a barrel to be free cash flow neutral, Goldman estimated.As such, in order for companies to achieve a 4.5% free cash flow yield by 2018 - in line with the sector's long-term average - they would need to lower capex by 13%, 20% and 28% in a $90, $80 and $70 oil-price environment, respectively."We maintain our cautious coverage view on the European oil services, which we believe would be hit most by these cuts." Top performing sectors so far todayMobile Telecommunications 5,244.36 +2.46%Fixed Line Telecommunications 4,658.66 +1.23%Travel & Leisure 7,896.28 +1.14%Forestry & Paper 11,848.49 +1.10%Automobiles & Parts 8,059.31 +0.94%Bottom performing sectors so far todayOil Equipment, Services & Distribution 17,977.28 -4.91%Industrial Engineering 8,648.96 -3.52%Oil & Gas Producers 7,224.87 -2.53%Health Care Equipment & Services 6,263.53 -2.18%Mining 15,070.03 -1.42%