Summary

• Energy sector profits are now driven by production volume, not just high oil prices.
• This volume-first strategy directly boosts demand for essential oil services and equipment.
• Oil services stocks offer an investment opportunity tied to rising operational activity.
• Increased drilling and production create a strong growth outlook for the services sector.

Why the Smart Money in Oil Isn't Betting on the Price

For as long as I can remember, investing in oil has been a simple, if rather brutish, game. You’d watch the barrel price on the news like a hawk. When it went up, you felt clever. When it went down, you felt like a mug. The fortunes of the big producers, the Exxons and Shells of this world, were lashed to that single, volatile number. It was a rollercoaster, and frankly, a bit of a headache.

But then, something interesting happened. Exxon Mobil posted some rather handsome earnings, and the reason wasn't a spectacular surge in oil prices. No, the secret sauce was something far more mundane, and to my mind, far more compelling. They simply pumped more of the stuff out of the ground. It seems the giants of the industry are finally learning a lesson every pub landlord knows, it’s often better to sell more pints than to just keep hiking the price of one.

The Plumbers Get Paid Either Way

This shift from chasing prices to chasing volume is, I think, a quiet revolution. It changes the entire investment landscape. If a producer decides to ramp up its output, it can’t just turn a magic tap. It needs an army of specialists. It needs the engineers who figure out where to drill, the crews with the heavy machinery to do the digging, and the tech wizards who get the oil flowing efficiently.

This is where the oil services companies come in. Think of them as the plumbers, electricians, and engineers of the energy world. They are the ones doing the actual work. Companies like Schlumberger, Halliburton, and Baker Hughes provide the essential kit and expertise. They supply the drills, the pumps, and the clever software that makes modern extraction possible.

When a producer like Exxon commits to a volume strategy, these are the firms that get the call. Their order books fill up not because the price of oil is £100, but because someone has decided to drill ten new wells instead of five. Their revenue is tied to activity, not speculation. And in a world as unpredictable as ours, activity feels like a much safer horse to back.

A Cyclical Play with a New Twist

So, why should this pique your interest now? Well, it seems to me that the market hasn't quite caught on. Many investors are still fixated on the headline oil price, leaving the services sector looking relatively unloved. These companies have spent the last few lean years tightening their belts, shedding costs, and becoming brutally efficient. They are now lean, mean machines, perfectly positioned to profit from an uptick in work.

It’s a classic cyclical play, but with a twist. Instead of just betting on a commodity boom, you’re investing in the underlying industrial activity that powers the entire sector. To me, this feels like a far more robust proposition. It’s a trend we’ve been watching closely, and it forms the core thesis behind the Powering Production: The Oil Services Surge basket. The logic is simple, you are backing the people with the shovels during a gold rush.

Of course, let's not get carried away. This isn't a risk-free punt. The energy sector is notoriously volatile, and a complete collapse in oil prices would hurt everyone, plumbers included. These are also complex industrial operations where things can, and do, go wrong. But the fundamental point remains. By focusing on the service providers, you are insulating yourself, at least partially, from the wild swings of the commodity markets and betting on something more tangible, the sheer volume of work that needs to be done.

Deep Dive

Market & Opportunity

• A strategic shift is emerging among major energy producers, focusing on increasing production volume rather than relying on commodity price movements.
• This volume-focused approach aims to create more predictable revenue streams and reduces dependency on commodity price volatility.
• Increased production activity creates a multiplier effect, proportionally growing demand for oil services, equipment, and technical expertise.
• Many oil services companies have streamlined operations and are positioned to benefit from increased activity with improved cost structures.

Key Companies

• Schlumberger Limited (SLB): Provides technology and equipment across the energy value chain, from seismic surveys to well completion tools.
• Halliburton Company (HAL): Specialises in drilling and completion expertise, including hydraulic fracturing and drilling technologies to maximise output.
• Baker Hughes, a GE company (BKR): Offers an integrated approach combining traditional oilfield services with digital technologies for drilling, completion, and production optimisation.

Primary Risk Factors

• The sector is subject to inherent volatility from commodity price swings, which can impact companies even if their models focus on activity levels.
• Regulatory changes, environmental concerns, and shifts in energy policy can affect sector dynamics.
• Operational risks include project delays, equipment failures, or safety incidents in complex working environments.
• The industry is cyclical, meaning periods of strong performance can be followed by significant downturns.

Growth Catalysts

• The shift towards volume-driven energy strategies is gaining momentum across the sector.
• A focus on consistent output over price speculation is expected to drive continued demand for specialised services and equipment.
• Oil services firms with strong technical capabilities and efficient operations may find themselves in an advantageous position.

Investment Access

• The Powering Production: The Oil Services Surge basket is available on the Nemo platform.
• The platform is ADGM-regulated and offers commission-free investing and AI-driven insights.
• Investment is accessible via fractional shares starting from just $1.
• All investments carry risk and you may lose money.