The upstream oil and gas business – specifically, the oilfield equipment and services sector – is like an ocean tanker: Tough to turn, but when it turns, it steams hard in that new direction. The oilfield turned in Q2 2017 and is now steaming on a new course.

David Otte, author of our firm’s Oilfield Market Report and the Product Line Forecast, tracks the quarterly product line revenues of every significant oilfield service company around the world, public and private -- about a thousand companies. If you add up all the product line revenues of every company and compare them to the prior quarter, you get this chart.

Quarterly Change in Global Oilfield Spending

All of the illustrated revenues through Q2 2017 are real; Q3 and Q4 2017 have been forecasted based on a host of factors, but using new well drilling as a significant influencer.

We have four key observations as a result of staring at this chart:

Q4 2014… When the market was at its fevered peak, the quarter saw zero growth as sales of oilfield service companies were inflecting and preparing to collapse.

Q1 2015… Even though 2016 felt the worst, the greatest quarterly collapse in oilfield equipment and service sales was immediately as the downturn started.

Q1 2017… This major growth quarter for US and Canadian service companies was sent negative by offshore/international spending, which lags market signals by about a year.

Q2 2017… Although some oilfield market segments are still struggling, more good is happening than bad.  The oilfield equipment and services market has finally again entered a growth phase.

What you don’t see on this chart is that rig count growth globally turned up in Q3 2016.
 
The cruel facts are these. First, in a rig activity downturn, the spending collapse is immediate and harsh. Second, in a rig activity upturn, the return to revenue growth is muted and delayed. Luckily, the oilfield is now on the chase.

PS. Looking out the window today (early October 2017) the price of oil in West Texas is about $50, which is what we’ve assumed will be the price for the balance of the year. If you pushed us to bet the over/under on this $50, we’d take the over and tip the bookie.