SLB slides 23% as oil crash reshapes energy investing

Brent crude's slide below $72 a barrel has erased nearly a quarter of SLB's market value, creating what some analysts see as a buying opportunity in the oilfield services sector.

Brent crude traded near $71 a barrel on July 4, extending a three-session decline as exports through the Strait of Hormuz recovered to above 10 million barrels a day and indirect U.S.-Iran talks advanced, easing supply disruption fears. West Texas Intermediate hovered around $68 a barrel, with both benchmarks extending losses after their weakest quarterly performance since 2020.

"The gush of oil escaping the Strait of Hormuz coincides with SPR releases and curtailed demand, keeping prices under pressure," said Saul Kavonic, senior energy analyst at MST Marquee.

UBS cut its 2026 Brent forecast by $9 to $84 a barrel and its 2027 estimate by $10 to $75, citing a faster-than-expected rebound in Hormuz flows after the interim U.S.-Iran memorandum of understanding signed June 17. Transits through the strategic waterway have recovered to about 50% of pre-conflict levels, while UAE exports have returned to nearly 85% of pre-war volumes through alternative shipping routes. Saudi exports remain 25% below pre-conflict levels, though June volumes rose about 10% from May.

The rout has hit oilfield services companies hardest. SLB, the world's largest oilfield services provider, has tumbled 23% from its recent high as the conflict in Iran forced it to halt or scale down Middle East operations. The company's first-quarter net income fell 6% year over year to $752 million, while revenue dropped 11% from the fourth quarter. Yet management has chosen not to reduce its cost base, preserving operational capacity for what it projects will be a broad-based recovery driven by structural supply rebalancing through 2028.

The Geopolitical Risk Premium Unwinds

The selloff reflects a market repricing of geopolitical risk that had pushed Brent as high as $138 a barrel in late February after U.S. and Israeli strikes on Iran. Since then, diplomatic channels have reopened. Qatar said the next round of U.S.-Iran talks will be scheduled after funeral ceremonies for Iran's former Supreme Leader Ali Khamenei, expected to begin July 4. President Donald Trump reiterated that Iran cannot be allowed to develop a nuclear weapon, while Iran has insisted on maintaining control over shipping through the Strait of Hormuz.

UBS analysts led by Henri Patricot flagged that risks remain two-sided. A breakdown of the MoU could push prices back toward $100 a barrel, with a spike to $120 or more possible if major oil infrastructure is targeted. Conversely, a faster ramp-up in flows combined with increased production from the UAE and Iran could send Brent back below $70, with a scenario incorporating greater Venezuelan output recovery potentially pushing prices to $60 or below.

Supply Deficits and Demand Headwinds

U.S. commercial crude inventories have fallen for 12 consecutive weeks to their lowest level since March 2025, excluding the Strategic Petroleum Reserve, providing a floor under prices. However, demand-side headwinds persist. China's crude imports fell sharply to 6 million barrels a day in June, well below the typical 10 million to 11 million range, highlighting the role of the world's largest crude importer as a swing buyer in a softening market.

The bank's balances show the market still in deficit through the third quarter of 2026 before shifting into a surplus of 2.9 million barrels a day in the fourth quarter and widening to 3.8 million barrels a day in 2027. UBS cut its 2027 inventory rebuild estimate to around 1 billion barrels from roughly 1.5 billion previously, as it no longer expects as large a stock deficit given the pace of supply recovery.

For SLB, the disruptions in the Middle East are temporary, management said, and the company projects that commodity prices will settle at higher levels than before the conflict. The conflict could drive significant investment in building supply redundancies, inventory replenishment, and the development of local resources to boost resilience, according to the company's late-April earnings call. Management remains optimistic about its outlook through the rest of this year and into 2028.

This article is for informational purposes only and does not constitute investment advice.